The Obama administration needs to stop negotiating so-called “trade” deals with deregulatory rules pushed by the likes of Citigroup that would undermine the re-regulation of Wall Street.
That’s the message that Senator Elizabeth Warren – champion of financial reform and member of the Senate Banking Committee, Congresswoman Maxine Waters – Ranking Member of the House Financial Services Committee, and other congressional leaders have delivered to the administration in recent letters.
The members of Congress warn against expanding the deregulatory strictures of pre-financial-crisis trade pacts, crafted in the 1990s under the advisement of Wall Street firms, via two pacts currently under negotiation: the Trans-Pacific Partnership (TPP) and Trans-Atlantic Free Trade Agreement (TAFTA, also known as TTIP).
As proposed, both pacts would include controversial foreign investor privileges that would empower some of the world’s largest banks to demand U.S. taxpayer money for having to comply with U.S. financial stability policies.
Yesterday, Sen. Warren and Sens. Tammy Baldwin and Edward Markey sent U.S. Trade Representative Michael Froman a letter calling for such “investor-state dispute settlement” (ISDS) provisions, which have sparked global controversy, to be excluded from the TPP. The letter states:
Including such provisions in the TPP could expose American taxpayers to billions of dollars in losses and dissuade the government from establishing or enforcing financial rules that impact foreign banks. The consequence would be to strip our regulators of the tools they need to prevent the next crisis.
Earlier this month, Rep. Waters and Reps. Lacy Clay, Keith Ellison, and Raúl Grijalva sent a similar letter to Froman that called for ISDS to be excluded from TAFTA to safeguard financial stability, stating:
Private foreign investors should not be empowered to circumvent U.S. courts, go before extrajudicial tribunals and demand compensation from U.S. taxpayers because they do not like U.S. domestic financial regulatory policies with which all firms operating here must comply.
TPP and TAFTA negotiators are also contemplating pre-crisis rules that would threaten commonsense prudential regulations such as restrictions on derivatives and other risky financial products, measures to keep banks from becoming “too big to fail,” firewalls to protect our savings accounts from hedge-fund-style bets, capital controls to prevent financial crises, and a Wall Street tax to counter speculative and destabilizing bubbles.
Senators Warren, Baldwin, and Markey made clear in their letter that such anachronistic rules must not be inserted into a binding pact:
To protect consumers and to address sources of systemic financial risk, Congress must maintain the flexibility to impose restrictions on harmful financial products and on the conduct or structure of financial firms. We would oppose including provisions in the TPP that would limit that flexibility.
So did Representatives Waters, Clay, Ellison, and Grijalva:
TTIP should also not replicate rules from past trade agreements that restrict the use of capital controls, which the International Monetary Fund and leading economists have endorsed as legitimate policy tools for preventing and mitigating financial crises. Nor should TTIP include provisions that could limit Congress’ prerogative to enact a financial transaction tax to curb speculation while generating revenue.
Similar warnings were recently issued by more than 50 of the largest civil society organizations concerned with financial stability on both sides of the Atlantic – including Americans for Financial Reform, which itself represents 250 organizations. In a letter to Froman and other TAFTA negotiators in October, the groups wrote:
We believe it is highly inappropriate to include terms implicating financial regulation in an industry-dominated, non-transparent “trade” negotiation. Financial regulations do not belong in a framework that targets regulations as potential “barriers to trade.” Such a framework could chill or roll back post-crisis efforts to re-regulate finance on both sides of the Atlantic whereas further regulation of the sector is much needed.
While governments across the world strive to rein in risk-taking by the financial firms that brought us the worst economic crisis since the Great Depression, U.S. trade negotiators (advised by many of those same firms) appear to be moving in the opposite direction. We cannot afford to insert into binding “trade” pacts more deregulatory constraints pushed by Wall Street. We cannot afford the TPP or TAFTA.
The recent letter from civil society organizations made this clear:
We are only now implementing the lessons of the last financial crisis. Let us not lay the groundwork for the next one.