D.C.'s New Bosses Start to Pay Back Wall Street

Rattlesnakes rattle their tails as a warning. It's their way of saying, "I'm ready to attack you to defend my ground," which really means defend myself.

All politicians are snakes. And some of them are rattlesnakes - but only if they have to be.

Most of them would prefer to silently slither in and out of their offices defending their self-interests. But sometimes a politician has to rattle his tail because his constituents' interests are threatened - meaning his campaign contributions (money) and votes wall streetare threatened.

Republicans have been doing a lot of rattling lately, since they are now the majority species in the deep, dark den known as Congress.

Me, I used to be a staunch Republican. I still adhere to the basic Republican principles of smaller government, lower taxes, and a "constructionist" view of the U.S. Constitution, not an interpretive one.

But I'm disgusted with the Rattlesnake Republicans who are pandering to crony capitalists. Their greedy, pro-super-wealthy and big-business agenda isn't about the good of the country, but about lining their own pockets and becoming super-wealthy themselves.

And here's how they've been lining their pockets most recently...

Rattlesnake Shake

On Jan. 14, the House of Republicans (oops, I meant House of Representatives) and greedy like-minded Democrats passed the Promoting Job Creation and Reducing Small Business Burden Act, by a vote of 271 to 154. According to Open Congress, 242 Republicans and 29 Democrats voted aye, while 1 Republican and 153 Dems voted nay.

There's a lot of rubbish in the act. But the thing that riles me most is a provision that gives big banks an additional two years to comply with a slice of the Volcker Rule, an integral part of the Dodd-Frank Wall Street Reform and Consumer Protection Act. That slice says banks have to shed their collateralized loan obligation assets by July 2017.

That's plenty of time. So why an extension to July 2019?

That's the sound of a rattle. It's the Rattlesnake Republicans and their Democratic buddies warning they're going to defang not only the Volcker Rule, but as much of Dodd-Frank as they can.

What are collateralized loan obligations (CLOs)?

Banks and other lending outfits, like private equity shops, make loans - a lot of them leveraged loans and high-yield loans - to medium and large companies for all kinds of reasons.

Lately, these outfits have been making a lot of these loans to highly indebted companies that may have been taken over or spun back out as public companies. These companies then borrow huge amounts to pay fees to their private equity masters or to pay dividends to their shareholders.

Those loans are "securitized," or packaged, like mortgage-backed securities, and "collateralized," or "tranched," meaning cut up into different layers with different collateral attached and different risks associated and different yields. That's similar to the collateralized mortgage obligations (CMO) that blew up so spectacularly in 2008.

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The tranches get sold to institutional investors, mutual funds, exchange-traded funds, and banks. Banks buy CLO slices because they are loan assets, and, after all, banks are in the loan business.

CLOs are assets because they are securities that represent loans, and loans are assets on banks' balance sheets. Forget that they can be toxic. Did I say that they are assets?

There is no reason to extend by two years the time banks need to shed these potentially toxic assets.

Just like there is no reason the same House of Reprehensibles passed a rule change as its first order of business in the 114th Congress.

That rule change requires all big budget legislative initiatives - think huge tax cuts for the 1% and big businesses - to be "dynamically scored."

Dynamically scored? That's a smoke-and-mirrors trick that says a budget cut (tax cut) isn't necessarily going to be a revenue cut.

If you score the victories that the rich and big businesses get (they don't say that - they say, if you score what the middle class gets) when tax savings from the rich and big businesses trickle down to the rest of Americans, they're actually going to be better off, get better jobs, and pay more taxes.

And so, a tax cut applied just so can be a revenue generator.

Who knew?

They're all snakes.

What we need is a milking station where the vipers in Congress can be brought out in public and milked of their venom.

What's a milking station? It's a voting booth.

More from Shah Gilani: Unless you're a subprime borrower, you probably don't know or think much about subprime auto lending. But that needs to change, and change fast. The next crisis has already started. Here's everything you need to know...

About the Author

Shah Gilani boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board of Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker.

The work he did laid the foundation for what would later become the VIX - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk, and established that company's "listed" and OTC trading desks.

Shah founded a second hedge fund in 1999, which he ran until 2003.

Shah's vast network of contacts includes the biggest players on Wall Street and in international finance. These contacts give him the real story - when others only get what the investment banks want them to see.

Today, as editor of Hyperdrive Portfolio, Shah presents his legion of subscribers with massive profit opportunities that result from paradigm shifts in the way we work, play, and live.

Shah is a frequent guest on CNBC, Forbes, and MarketWatch, and you can catch him every week on Fox Business's Varney & Co.

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