Congress cut a deal last night to keep the government open.
As usual, it was an ugly deal, too. Wall Street banks called in their political IOUs and cashed in big.
'This bill allows too-big-to-fail banks to make the same risky bets on derivatives that led to the
largest taxpayer bailout in history
and nearly destroyed the economy,' argued Bernie Sanders

From Brad Hoppman -

Banks: Desperately Seeking Bailouts – Again

Remember 2008? The nation's largest banks were in danger of blowing up thanks to crazy subprime mortgage bonds and an overheated real estate market.

With a couple of exceptions (Bear Stearns and Lehman Brothers), they didn't blow up. They're still with us today, bigger and more profitable than ever. That's because Congress, the Bush Administration and the Federal Reserve spent trillions of dollars bailing out the entire industry.

That experience left a bitter taste in the nation's mouth. The 2010 Dodd-Frank financial reform law was an attempt to keep it from happening again. Dodd-Frank is far from perfect, but it was a start.

Part of the Dodd-Frank law prohibits banks from using federally insured deposit money — like your savings or checking account — to trade in risky derivative instruments. It's called the “swaps push-out“ provision because banks would have to push those transactions out of the insured bank into separate, uninsured subsidiaries.

I think this makes perfect sense. If taxpayers must do banks the favor of insuring their deposits, it is wise to have reasonable restrictions on the way banks use the insured money. They shouldn't be able to gamble or speculate with it. That sets up a perverse “Heads we win, tails the taxpayers lose“ incentive system — exactly what created the 2008 crisis.

The big banks don't like the swaps push-out ... and last night's vote freed them from it. A provision attached to the government funding bill repeals that section of Dodd-Frank. The banks will now be free to buy and sell risky derivatives with your money.
Whose idea was this? That isn't entirely clear, but this is not a partisan battle at all. An odd coalition of liberal Democrats and Tea Party Republicans tried to resist the amendment, but they didn't have enough votes to stop it.

Stranger still, President Obama says he will sign the bill if it gets past the Senate, as seems likely. That's weird because just last year his own Treasury Secretary, Jack Lew, spoke out against this Dodd-Frank change.

The banks obviously fought hard to get this provision into the funding bill. JPMorgan Chase (JPM) Chair & CEO Jamie Dimon reportedly spent yesterday making phone calls to wavering House members. Apparently, he convinced them.

Here's what is strange, though. Why now? Why the sudden urgency to repeal the swaps push-out provision immediately?

Political analysts have been saying business interests will have more sway when the new House and Senate convene in January. Couldn't they have waited, and maybe got what they wanted without creating such an uproar? It sure seemed like it.

This makes me wonder if maybe the banks literally can't wait. Maybe they need the ability to trade derivatives with insured deposits now, not early next year.

Why would that be?

I have a guess ... and let me be clear that this is just speculation on my part. I don't have any kind of inside knowledge.

We know the collapse in oil prices caught Wall Street off guard. I'm seeing more and more stories about the impact spreading from energy stocks into the junk bond market.

Many smaller U.S. and Canadian shale companies financed their exploration and development by issuing junk bonds. Now, with oil prices down more than 40% from their peak, those companies' ability to make timely payments to their bondholders is in serious doubt.

In this respect, it is very much like the housing collapse. Instead of jobless homeowners who can't make mortgage payments, we have struggling energy companies who can't sell their oil for a price that lets them make bond payments.

They can't refinance their debt, either. Bond yields have doubled in some cases — choking off the supply of credit to energy producers.

Does Wall Street see this coming? Are they desperately lining up preemptive bailouts to protect themselves? Do their friends in Washington know more than they're letting on?