Congress averted another government shutdown by passing a $1.1 trillion 'Cromnibus' spending package. The 1,603 page measure, packed with special interests, funds the most of the government through the end of September. The Department of Homeland Security is only funded through February 27, when the Republican-dominated Congress is expected to force President Obama to roll back portions of his immigration policy via "power of the purse."
The contents of the bill have been the source of criticism from both sides of the isle. Conservative Republicans claim the bill does nothing to avert the implementation of Obama's executive immigration action while many Democrats claim the bill is full of special interests that meet the needs of Wall Street bankers rather than the average American. The bill fully funds the Affordable Care Act as well as Obama's immigration action (until February 27). The bill also includes another bank bailout and rolls back portions of the 2010 Ddd-Frank financial reform law that prevents banks from risky transactions, some of which led to the 2008 financial crisis.
"If Congress repeals this regulation of dangerous over-the-counter derivatives and swaps, the U.S. economy will be vulnerable to the same kind of financial risks that triggered the Great Recession," contended Joseph E. Stiglitz, chief economist at the Roosevelt Institute and Nobel Laureate, in a press release.
Many Democratic members of Congress also expressed their disapproval of portions of the bill that help the "rich and powerful." In a speech on the Senate floor, Sen. Elizabeth Warren (D-Mass) said "The House of Representatives is about to show us the worst government for the rich and powerful" and warned that her colleagues should not support a "deal negotiated behind closed doors that slips on a provision that would let derivatives traders on Wall Street gamble with taxpayer money and get bailed out by the government when their risky bets threaten the blow up out financial system."
Likewise, the No. 2 Democrat in the Senate told reporters "[It's] an awful invitation for another financial disaster" and "A number of us are very concerned."
What are Derivatives?
A derivative is "a security whose price is dependent upon or derived from one or more underlying assets. The derivative itself is merely a contract between two or more parties. Its value is determined by fluctuations in the underlying asset. The most common underlying assets include stocks, bonds, commodities, currencies, interest rates, and market indexes."
In common English, derivatives are essentially a way for investors to sell a commodity or a group of commodities as a form of investment. One of the derivatives of great concern at current is crude oil. Gas prices have precipitously fallen as the supply of oil has skyrocketed while demand has fallen. This has caused crude oil to fall from $105 a barrel (June) to $57 per barrel in December. OPEC has refused to back off on oil production, believing that the market would stabilize on its own. However, many skeptics and economists believe countries like Saudi Arabia want the price of oil to go low enough to choke out the profitability of American shale oil producers. Drilling for oil in the United States is far more expensive than it is in countries like Saudi Arabia. It is believed that Saudi Arabia would likely lower its production of crude oil once it has reestablished itself as the worlds largest oil producer. What does this mean for investors who bought derivatives that were developed with the assumption that oil prices would be around $90 a barrel, not $60 a barrel? It could prove troublesome. Don't worry, Wall Street lobbyists were on it and so were their buddies in Congress. They managed to get the government to back a few hundred trillion dollars in derivatives. The taxpayers could very much be on the hook to bail out the risky behavior of Wall Street bankers, once again.
On page 1,599 of the bill, Congress details out new donation rules that allow individuals to give more than $300,000 direct to political parties each year. This is a loop hole that both parties could have closed instead of expanding on a rule that makes it advantageous for politicians to take money from special interest groups and the "rich and powerful." You know it takes big money to win elections, right? What kind of people have the ability to give big money to politicians? Not the average American, right?
It should be glaringly obvious to any American that Congress works for lobbyists, big business, special interests groups, and the rest of the rich and powerful - not the average American. Rest assured that Congress can work on bipartisan legislation as long as it serves the special interests of both political parties. By the way, it would literally take 24 hours to read the piece of legalization in its entirety. Do you think any of these politicians read the entire bill? Probably not, but they sure did vote on it. And vote they did.
Photo credit: Jason Laboy