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Forum Post: Screwing The Taxpayer, 600,000 At A Time

Posted 1 year ago on Sept. 20, 2012, 5:48 p.m. EST by jk1234 (257)
This content is user submitted and not an official statement

This from Ticker Guy:

http://market-ticker.org/akcs-www?post=211770

Why even vote?

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3 Comments


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[-] 1 points by jk1234 (257) 1 year ago

From Rolling Stone: Matt Taibbi

Wall Street lobbyists are awesome. I'm beginning to develop a begrudging respect not just for their body of work as a whole, but also for their sense of humor. They always go right to the edge of outrageous, and then wittily take one baby-step beyond it. And they did so again last night, with the passage of a new House bill (HR 2827), which rolls back a portion of Dodd-Frank designed to protect cities and towns from the next Jefferson County disaster.

Jefferson County, Alabama was the most famous case – the city of Birmingham went bankrupt after being bribed and goaded into taking on billions of dollars of toxic swap deals – but in fact it was just one of hundreds of similar examples of localities being duped into suicidal financial deals by rapacious banks and financial companies. The Denver school system, for instance, got clobbered when it opted for an exotic swap deal pushed by J.P. Morgan Chase (the same villain in Jefferson County, incidentally) and then-school superintendent/future U.S. Senator Michael Bennet, that ended up costing the school system tens of millions of dollars. As was the case in Jefferson County, the only way out of the deal involved a massive termination fee that might have been even more destructive than the deal itself.

To deal with this problem, the Dodd-Frank Act among other things included a simple reform. It required the financial advisors of municipalities to do two things: register with the SEC, and accept a fiduciary duty to respect the best interests of the taxpayers they are advising.

Sounds simple, right? But Wall Street couldn't have that. After all, if companies are required to have a fiduciary responsibility to cities and towns, how in the world can they screw cities and towns? The idea was a veritable axe-blow to the banks' municipal advisory businesses.

So what did Wall Street lobbyists and trade groups like SIFMA (the Securities Industry and Financial Markets Association) do? Well, they did what they've been doing to Dodd-Frank generally: they Swiss-cheesed the law with a string of exemptions. The industry proposal that ended up being HR 2827 created several new loopholes for purveyors of swaps and other such financial products to cities and towns. Here's how the pro-reform group Americans for Financial Reform described the loopholes (emphasis mine):

For example, any advice provided by a broker, dealer, bank, or accountant that is any way "related to or connected with" a municipal underwriting would be exempted from the fiduciary requirement. A similar exemption would be created for all advice provided by banks or swap dealers that is in any way "related to or connected with" the sale to municipalities of financial derivatives, loan participation agreements, deposit products, foreign exchange, or a variety of other financial products.

So basically, if you're underwriting a municipal bond for a city or a town, and you happen also to give the city or town advice about some deadly swap deal that will put the city into bankruptcy for the next thousand years, you don't have a fiduciary responsibility to that city or town. The banks' view is that being asked to perform the merely-technical function of underwriting a bond is very different from advising someone to take on an exotic swap deal – so if a bank is mainly an underwriter and happens to offhandedly recommend this or that swap deal, it just isn't fair to drop this onerous financial responsibility, this weighty designation of municipal financial advisor, on its shoulders.

Here's how SIFMA describes what that awful burden would have been under Dodd-Frank's original reform:

The consequences of being deemed to be a municipal advisor are very serious. Providing municipal advice without having registered is "unlawful"—i.e. potentially criminal. The highest standard of conduct--a fiduciary duty--is imposed.

God forbid! Thankfully, this new law provides an exemption from that "highest standard of conduct" providing the bank or financial company is not just giving advice, but also performing a merely technical function like underwriting.

The details of this law are pretty hairy, but the basic idea is simple: provided a bank isn't dumb enough to only provide advice, or to ask for separate compensation for advice, it doesn't owe anyone any goddamned fiduciary responsibility. So they can keep screwing cities and towns as much as they'd like.

On the whole, this reminds me a lot of an episode of the classic British spoof show Brass Eye, which describes the sale of dangerous drugs as completely proscribed by law – unless the sale is conducted "through a Mandrill."

This bill passed last night with the support of both parties and Barney Frank. Are you proud to be an American yet?

[-] 1 points by ZenDog (20529) from South Burlington, VT 1 year ago

I think there has been a misinterpretation of the bill:

.

H.R.2827 -- To amend the Securities Exchange Act of 1934 to clarify provisions relating to the regulation of municipal advisors, and for other purposes. (Introduced in House - IH)

HR 2827 IH

112th CONGRESS

1st Session

H. R. 2827

To amend the Securities Exchange Act of 1934 to clarify provisions relating to the regulation of municipal advisors, and for other purposes.

IN THE HOUSE OF REPRESENTATIVES

August 26, 2011

Mr. DOLD introduced the following bill; which was referred to the Committee on Financial Services


A BILL

To amend the Securities Exchange Act of 1934 to clarify provisions relating to the regulation of municipal advisors, and for other purposes.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. DEFINITION OF MUNICIPAL ADVISOR.

Section 15B(e)(4) of the Securities Exchange Act of 1934 is amended to read as follows:

(4) the term `municipal advisor'--

  • (A) means a person (who is not a municipal entity or an employee of a municipal entity) that--

    • `(i) is formally engaged, in writing and for compensation, by a municipal entity to provide advice to a municipal entity with respect to municipal financial products or the issuance of municipal securities, including advice with respect to the structure, timing, terms, and other similar matters concerning such financial products or issues; or

    • `(ii) undertakes a solicitation of a municipal entity for such purpose;

  • `(B) includes financial advisors, guaranteed investment contract brokers, third-party marketers, placement agents, solicitors, finders, and swap advisors, if such persons are described in either of clauses (i) or (ii) of subparagraph (A); and

  • `(C) does not include--

    • `(i) any broker, dealer, or municipal securities dealer (or person associated with such broker, dealer or municipal securities dealer);

    • `(ii) any investment adviser registered under the Investment Advisers Act of 1940 or with a State or territory of the United States (or person associated with such an investment adviser);

    • `(iii) any commodity trading advisor, swap dealer, major swap participant, futures commission merchant or introducing broker registered under the Commodity Exchange Act (or person associated with a commodity trading advisor, swap dealer, major swap participant, futures commission merchant or introducing broker) who is providing advice related to, engaging in, or arranging any swap;

    • `(iv) any security-based swap dealer or major security-based swap participant registered under the Securities Exchange Act of 1934 (or any person associated with a security-based swap dealer or major security-based swap participant) who is providing advice related to, engaging in, or arranging any security-based swap;

    • `(v) any attorney offering legal advice or providing services that are of a traditional legal nature;

    • `(vi) any engineer providing engineering advice;

    • `(vii) any financial institution or person associated with a financial institution; or

    • `(viii) any elected or appointed member of a governing body of a municipal entity, with respect to such member's role on the governing body;'.

SEC. 2. DEFINITION OF INVESTMENT STRATEGIES.

Section 15B(e)(3) of the Securities Exchange Act of 1934 is amended to read as follows:

(3) the term `investment strategies'--

  • `(A) means plans or programs for the investment of the proceeds of municipal securities (but not other public funds) that are not municipal derivatives or guaranteed investment contracts, and the recommendation of and brokerage of municipal escrow investments, where, with respect to the municipal advisor offering such plans, programs, or recommendations, such proceeds of municipal securities and municipal escrow investments--

    • `(i) are known to the municipal advisor to be comprised of funds or investments maintained in a segregated account that is exclusively for the purpose of maintaining such proceeds or escrow investment; or

    • `(ii) have been identified to the municipal advisor, in writing, as funds or investments that constitute the proceeds of municipal securities or municipal escrow investments; and

  • `(B) does not include--

    • `(i) merely acting as a broker or principal with respect to the purchase or sale of a security or other instrument;

    • `(ii) providing a list of, or price quotations for, investment options or securities or other instruments which may be available for purchase or investment or which satisfy investment criteria specified by a municipal entity;

    • `(iii) acting as a custodian;

    • `(iv) providing generalized information concerning investments which are not tailored to the specific investment objectives of the municipal entity; or

    • `(v) providing advice with respect to matters other than the investment of funds or financial products;'.

SEC. 3. DEFINITION OF SOLICITATION OF A MUNICIPAL ENTITY.

Section 15B(e)(9) of the Securities Exchange Act of 1934 is amended by inserting before the semicolon the following `, but where communications on behalf of a fund or other collective investment vehicle shall not be deemed to be on behalf of any investment adviser that advises or manages such fund or investment vehicle'.

SEC. 4. ELIMINATION OF FEDERAL FIDUCIARY STANDARD FOR MUNICIPAL ADVISORS.

Section 15B(c)(1) of the Securities Exchange Act of 1934 is amended by striking the second sentence and inserting the following:

`No municipal advisor may engage in any act, practice, or course of business that is in contravention of any rule of the Board. In issuing regulations to carry out this paragraph, the Board shall--

  • `(A) limit the duties of municipal advisors in relation to municipal entities to those specific activities involving such municipal entity described under the definition of municipal advisor in subsection (e)(4);

  • `(B) specify when such duties begin and terminate in relation to such activities; and

  • `(C) not prohibit principal transactions by municipal advisors.'.