Online Gambling Zealot Spencer Bachus Lets District Down

Written by:
Aaron Goldstein
Published on:
Spencer Bachus Derivites

Spencer Bachus Votes Against Derivative Regulations Against Best Interest of District in Agony

The man who hates online poker and other forms of Web gambling, Spencer Bachus, who also acts as the House Financial Services Committee, is helping to exasperate the agony of his district of Jefferson County.  This is the claim of Joe Nocera of the New York Times

Following a well publicized crackdown on Internet gambling website, Bachus name appeared all over the press.  He applauded the crackdown.  His podium is always “the minors will gamble with their parents credit card” while failing to realize that around 99 percent of online gambling sites incorporate stringent safeguards to prevent such occurrences.  Maybe in Alabama, a state facing its own political gambling corruption case, a child should be punished first for accessing an online gambling site while overlooking the obvious theft of his or her parents plastic.   

Nocera’s piece has nothing to do with online gambling but rather the potential hypocrisy of Mr. Bachus:

Once upon a time — back when too many people viewed derivatives as glittering innovations with magical powers to hedge against risk — Jefferson County was ordered by the Environmental Protection Agency to upgrade its sewer system. To finance the new sewers, it issued bonds totaling nearly $3.2 billion.

After the sewer system was completed, the county moved all that debt from fixed rates to variable rates. It did so because some investment bankers at JPMorgan persuaded the county to purchase derivative contracts, in the form of interest rate swaps, that would supposedly allow it to avoid paying higher interest if rates went up. Magic indeed.

At first, this arrangement worked well enough. Though the cost of the sewers was bloated beyond belief — they were originally supposed to cost $1 billion — the county made its bond payments. The bank reaped handsome fees from its swaps contracts.

But the financial crisis caused those clever hedges to go blooey. Indeed, the swaps not only failed to protect the county from losses — they actually exacerbated the losses. In addition, two of its bond insurers had their credit rating lowered because they had also insured lots of toxic subprime derivatives. The downgrade triggered huge hikes in interest and principal for Jefferson County.*

Today, the county is broke.

What Bachus did next is unfathomable.  Last week, with a handful of his fellow Republicans, The House Financial Services Chairman delayed derivative regulation until January 2013.

It is hard not to see this move as an act of hostility toward any derivative regulation, Nocera noted.

Even if it is just about delay, rather than outright obstruction, that means the Republicans are asking for two more years during which the industry will add trillions of dollars worth of “financial weapons of mass destruction” (to use Warren Buffett’s famous description) to the $466.8 trillion of unregulated derivatives already in existence. How can this possibly be good?

Nocera hasn’t been able to get a response from Bachus.  He’ll keep trying though.

- Aaron Goldstein,


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