ELECTION Day is upon us, and neither President Obama nor Mitt Romney has
really addressed one of the nation’s most pressing economic issues: the
risk that one day taxpayers might have to bail out swashbuckling
financial institutions again.
Granted, the economic pain many are feeling now — the snail’s pace
recovery, the stubbornly high unemployment — is foremost in voters’
minds. But given all we’ve gone through after the last binge in the
financial industry, failing to confront the too-big-to-fail question is a
serious oversight.
Many Americans probably think the Dodd-Frank financial reform law will
protect taxpayers from future bailouts. Wrong. In fact, Dodd-Frank
actually widened the federal safety net for big institutions. Under that
law, eight more giants were granted the right to tap the Federal
Reserve for funding when the next crisis hits. At the same time, those
eight may avoid Dodd-Frank measures that govern how we’re supposed to
wind down institutions that get into trouble.
In other words, these lucky eight got the best of both worlds: access to the Fed’s money and no penalty for failure.
Which institutions hit this jackpot? Clearinghouses. These are large,
powerful institutions that clear or settle options, bond and derivatives trades. They include the Chicago Mercantile Exchange, the Intercontinental Exchange and the Options Clearing Corporation. All were designated as systemically important financial market utilities
under Title VIII of Dodd-Frank. People often refer to these
institutions as utilities, but that’s not quite right. Many of these
enterprises run lucrative businesses, have shareholders and reward their
executives handsomely. Last year, the CME Group,
the parent company of the Chicago Mercantile Exchange, generated almost
$3.3 billion in revenue. Its chief executive, Craig S. Donohue,
received $3.9 million in compensation and held an additional $10 million
worth of equity awards outstanding, according to the company’s proxy
statement.
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