This morning, Roosevelt Institute Braintruster William K. Black talked to Bloomberg's Amy Liu about Timothy Geithner, Ben Bernanke, and the growing scandal over AIG emails. Black, along with Eliot Spitzer and Frank Partnoy, has been calling for the release of AIG emails on New Deal 2.0 for weeks. As they put in in last Friday's post, the emails released to Darrell Issa spanning 5 months are just a glimpse (see "Tip of the Iceberg") of what will be revealed if 10 years of documents are released to the public. In December, the three wrote an op-ed for the NYT insisting that the public be given access to these emails, since we own 80% of the company.

As Black sees it, AIG crashed and burned, and the emails are the 'black box' of the financial crisis. He likens the economy to a plane that went down, explaining that the 'black box' is what tells you which systems failed and how to prevent the problem that caused the crash from recurring. "You have to understand what caused the crisis, just like you have to understand what caused the plane crash," said Black. He believes that the AIG emails contain information about multiple cover-ups involving Timothy Geithner, Ben Bernanke, and the failure of the financial system.

Click here to view Bloomberg clip.

Today on the Real News Network, Robert Johnson, Director of Financial Reform at the Roosevelt Institute, talks to Paul Jay about the need for a new economic paradigm and the inadequate financial reform bill making its way through Congress. Johnson, who has recently been chosen to head George Soros' Institute for New Economic Thinking, warns that the bill in its current form allows Wall Street to continue to do business as usual. And that risky business could push the economy right over the cliff again.

Paul Jay:  "What's changed that would stop it [another crisis] from happening all over again?"

Robert Johnson: "Nothing has changed in the legislation on regulation, and that's very haunting. Many, many people now can see that the House bill that just passed by Barney Frank's committee is really not up to the task....I don't think this is as much a failing of intellect, but a failure of will, given the role of money in politics and given the power of financial sectors' money in lobbying."

But, as Johnson puts it, "the public is not buying it." Public outrage is growing, and Johnson thinks that Obama will increasingly be held to account for the lack of serious effort to reign in Wall Street.

Click here to view video.

Mike Konzcal, whose postings many of you know from Rortybomb and the Atlantic Business blogs, will be guest-blogging this week for New Deal 2.0 while yours truly is enjoying a floating populist retreat on The Nation's annual cruise. Among other things, he'll be breaking down HR 4173 -- the bill that may be setting us up for another massive Wall Street giveaway.

Konzcal has recently been named Fellow at the Roosevelt Institute, so we're looking forward to more of his sharp analysis of the economy and more on these pages going forward.

Mike Konczal of Rortybomb, who has just joined our team as a Roosevelt Institute fellow, is guest blogging today at The Baseline Scenario on the financial reform bill and what lobbyists are doing to render the bill useless.

How To Kill OTC Derivatives Reform in Two Sentences

Have lobbyists snuck another major loophole into the OTC Derivatives bill? This week the final touches are being put on Barney Frank's financial regulation bill -- H.R. 4173 -- "Wall Street Reform and Consumer Protection Act of 2009." One of the centerpieces of this reform is Title III: Over-the-Counter Derivatives Markets Act. And one of the goals of this reform would be to get as many derivatives as possible to trade on exchanges.

An initial hurdle for Barney Frank was what to do with an "end-user exemption." This would exempt certain types of derivative buyers who use derivatives, say corporations hedging interest rate risk without speculating, from the extra scrutiny and regulation that comes with the exchange/clearing system. One of the narratives of financial reform so far has been that this initial end-user exemption was too large a loophole at first, and instead of just handling 10-20% of the market, it would let a large majority of the market sneak through, but ultimately Barney Frank was convinced by consumer groups and people pushing for stronger financial regulation and fixed this issue. See Noah Scheiber here in "Could Wall Street Actually Lose in Congress?" for this story, and it shows up as well in a recent profile of Barney Frank in Newsweek.

I thought it was a little too early to declare victory, and sure enough instead of attacking and weakening how people will have to use the exchanges, lobbyists have re-focused their attack on the idea of the exchange itself. For a while, reformers have been worried about an "alternative swap execution facility." This would be a way of essentially allowing the current way things are done to be allowed to count as an exchange. Fighting off this loophole was a battle from a month ago, and it had appeared to be won. Now many are worried that this language appears to have snuck back into the final bill now.

Colin Peterson (D-MN), Chairman of the House Committee on Agriculture, along with Barney Frank, has added an An amendment to the OTC bill (opens large pdf). There are two relevant sentences for reformers from the long document. The first is on page 32:

(49) SWAP EXECUTION FACILITY.-The term ‘swap execution facility' means a person or entity that facilitates the execution or trading of swaps between two persons through any means of interstate commerce, but which is not a designated contract market, including any electronic trade execution or voice brokerage facility.

This replaces other language in the original-bill (opens even larger pdf), on page 546:

SEC. 5h. SWAP EXECUTION FACILITIES.



(a) REGISTRATION.-



(1) INGENERAL.-



(A) No person may operate a swap execution facility unless the facility is registered under this section.

(B) The term ‘swap execution facility' means an entity that facilitates the execution of swaps between two persons through any means of interstate commerce but which is not a designated contract market.

So notice any differences? First the definition of a swap execution facility has been expanded to include "a person" (different from the "or entity"). It's also expanded to an "or trading" definition, and includes voice brokerage firms. So now we are moving from the definition of something that is a platform for swaps to be traded on to instead something that simply helps swaps get traded. This could, quite simply, be a telephone over which two people trade a derivative (with one person declaring himself to be the exchange?). Instead of changing the way business is done for reform it looks like it redefines reform as the way things are currently done, and just calls it a victory.

Now on page 89 of the amendment:

(2) RULES FOR TRADING THROUGH THE FACILITY.-Not later than 1 year after the date of the enactment of the Derivative Markets transparency and Accountability Act of 2009, the Commission shall adopt rules to allow a swap to be traded through the facilities of a designated contract market or a swap execution facility. Such rules shall permit an intermediary, acting as principal or agent, to enter into or execute a swap, notwithstanding section 2(k), if the swap is executed, reported, recorded, or confirmed in accordance with the rules of the designated contract market or swap execution facility.

The second sentence here allows an intermediary to execute a swap, ignoring the section 2(k) which is the meat of the reform, as long as the swap is recorded somewhere. Now we already have, from above, that a swap execution facility can be something other than the exchange. This is a rule that guts the regulation right out the door, and for no apparent benefit to reform. Many of these alternative swap facilities will be owned by the banks, so it won't necessarily force the price transparency that has been promised. To trust regulators to simply do the right thing is naive at best when the ability to follow fixed rules is available.

From what I'm hearing, it is possible Frank doesn't even know that this language, once in the bill as an amendment but removed, has snuck back into his reform legislation. Things are moving very quickly on the hill right now, and this is scheduled to be wrapped up by tomorrow. However this new language runs counter to the reforms Frank has promised to deliver to the American people. Either this language needs to be clarified before the bill is complete, or removed entirely.

This post originally appeared on The Baseline Scenario.