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On December 13, the House Financial Services Committee convened what is likely to be the last hearing of this Congressional session for the purposes of seeking “alternatives” to the Volcker Rule. The Volcker Rule, as I’ve written previously for The Nation, is a piece of Wall Street reform with a crucial purpose: to create a firewall that bars banks that enjoy FDIC insurance from risky, speculative gambling. On Wall Street, gambling with the firm’s money is known as proprietary or “prop” trading. This is an important rule to get right, and its final version has been delayed far too long. And unfortunately, the aim of this hearing was not implementing the regulation, or even about exploring alternatives to the rule but rather dragging things out to the benefit of the banks. Ad Policy

The hearing put on display everything we’ve come to expect from our most beholden members of Congress. Many questions had clearly been penned by bank lobbyists, and a largely hostile reception greeted the two witnesses, William Hambrecht and Dennis Kelleher, who dared to defend the reforms. But three Representatives in particular— Chairman Spencer Bachus (R-AL), Representative Shelley Moore Capito (R-WV), and Representative Jeb Hensarling (R-TX), the incoming chairman of the Committee—stood out, handing over their pulpit to a litany of misrepresentations about the effect of the rule.

Lie #1: Prop trading did not cause the crisis

In his opening statement, Chairman Bachus argued that the Volcker Rule is a “self-inflicted wound that should be repealed,” because prop trading did not cause the crisis. He’s suffering, perhaps, from a case of self-inflicted amnesia that likely came about from the $1.3 million he received from the Financial, Insurance and Real Estate sector in the 112th Congress.

Prop trading was absolutely a cause of the financial crisis. From 2002–07, when the market was going up, every bank on Wall Street accumulated absolutely massive amounts of mortgage-backed securities and CDOs. And banks were not accumulating them exclusively to sell off immediately to customers, but in many cases were holding on to them because they were, at the time, so extraordinarily profitable. It was only after the market started to realize just how toxic these investments were that they became difficult to sell. Leading up to and following the failure of Lehman, everyone was trying to sell out of their immense stockpile of these assets all at once, which caused the prices of these assets to plummet hard and fast. One of the banks worst hit by the crisis was Citigroup, who, according to their 2008 annual report, lost $20.7 billion on subprime mortgage-related holdings alone. A July 2011 report from the Government Accountability Office noted that, apart from losses due to specific subprime-related holdings, all the gains made by stand-alone prop trading desks from 2006–10 were entirely wiped out by prop trading losses.

But even Bachus (who once stated that regulators exist to “serve the banks”) could barely muster any enthusiasm for the statement he delivered, which he read robotically and without conviction. Wall Street’s biggest mercenary of the last several years is likely tired of being a puppet, with this hearing being his last before term-limits end his Chairmanship.

Lie #2: The Volcker Rule will hurt regional banks

In her opening statement, Representative Shelley Moore Capito repeated a concern made by KeyBank, a regional bank based in Cleveland, of the substantial hours that will be spent proving the bank is not involved in prop trading. This is a reference to the metrics the Volcker Rule requires banks produce. But any substantial financial institution should already be producing such metrics for their own internal risk systems. If a bank requires significant time and effort to generate them simply because of the Volcker Rule, I fear more for their own stability and the viability of their business model than for their ability to conform to this regulation.

In addition, in all likelihood the concerns are overblown. A recent report by Public Citizen called “Business As Usual” found that “the Volcker Rule will mean no change, no closure of business divisions, no costs from foregone financial activity, for more than 99.9 percent of banks.”

Finally, KeyBank, while not as infamous as the largest megabanks, is hardly an innocent bystander. They received $2.5 billion from TARP, and were one of the last to pay it back. In addition to the TARP money, KeyBank benefited from an average of $1.8 billion a day in emergency lending from the Federal Reserve, with a peak loan in November 2008 of $11.5 billion—a loan that was more than 200 percent of its entire market value at the time.

The banks’ political capital is so weak that they cannot reasonably complain about restrictions levied on them—and they know it. So they hide behind the convenient cover of the regional banks to do said complaining for them. Regional banks are often compelled to argue on behalf of the megabanks, since they maintain a veritable cartel over the largest pieces of the financial sector.

Lie #3: The Volcker Rule will hurt teachers

In the most surreal moment of the hearing, Representative Jeb Hensarling tried to argue that the Volcker Rule will hurt the pension funds of teachers, and smugly asked, “I hear much language here about the big banks, but to what extent are we thinking about the little teachers?“ He pointed to a comment letter from TIAA-CREF, a retirement services provider, saying that it served as evidence of a negative impact of the Volcker Rule. He used the letter to argue that the entire rule will endanger the retirement security of teachers.

But the letter he cites does not insist that the Volcker Rule, as a whole, causes such a problem. Instead, it asks for very specific exemptions be granted to them as an insurance company. But rather than be nuanced and accurate in his characterization, Representative Hensarling invokes their letter to make a blanket statement about the rule itself, couched in the victimization of those “who spent their entire life in teaching, getting by on pretty much a fixed income.” Indeed, if Hensarling were interested in nuance and truth, he may have mentioned that CalPers, the largest public pension fund in the United States, supports the Volcker Rule.

It is a truly comical assertion that Hensarling cares deeply about “the little teachers.” His record on education is nothing if not consistent: he has received an F rating on the National Education Association’s Legislative Report Card—which measures overall support for public education and educators—flunking every single year since 2005. In reality, Hensarling is only concerned about these teachers because they are a convenient pawn with which to advance the agenda of those who control his purse strings—Hensarling collected $1.8 Million from the Financial, Insurance and Real Estate sector in the 112th Congress, his largest donation source.

* * *

One of the more vivid phrases bandied about on Wall Street is “ripping your client’s face off:” when a client is given a heaping pile of garbage, but made to think it’s a ridiculously grand bargain. The talking points and thinly veiled threats behind the bought-off Representatives at this hearing are nothing more than Washington’s own flavor of Wall Street ripping our faces off, again. They’re claiming to oppose the Volcker Rule for our own good, but in reality, they are nothing more than threats to keep away from their profits, or they’ll break our kneecaps.

Earlier this year, Occupy the SEC, among several others, issued detailed comments outlining the ways the Volcker Rule needed to be tightened to eliminate loopholes (full disclosure: I was a co-author of the comment letter). Our elected officials should not be aiding the banks in their long, and so far successful, fight to stave off this rule but should instead be ensuring the delays end and the loopholes are closed. We need the regulators to deliver a clear, strong Volcker Rule, or we leave the economy at the whim of the latest schemes Wall Street dreams up to fleece us all, institutional and retail, big and small, rich and poor alike. At the end of the day, Wall Street is ambivalent about just whose face they rip off, so long as they can convince us, or our elected officials, to keep allowing them to do so.