As rumors swirl on Capitol Hill that Republicans are getting set to filibuster a strong amendment to the financial services reform bill which would crack down on Goldman Sachs-style conflict of interest trading, reformers picked up a new ally in the respected insurance firm USAA.
USAA is an insurance company that was set up in 1922 to assist military families and their dependents. USAA is a Fortune 500 firm, but it has an unusual structure under Texas law that allows it to be an insurance company with a banking arm and an investment arm. Since there are no shareholders, profits are retained to maintain the institutions financial strength or they are returned to the members.
USAA garners tremendous loyalty from its clients and great respect on Capitol Hill. The institution's support of financial reform, and specifically the amendment offered by Sens. Merkley and Levin on proprietary trading, should give pause to Senators considering a filibuster of this critical amendment.
USAA's position in support of Merkley-Levin is a new one. Some weeks ago, USAA sent out an unusual email to its members asking them to call their Senator about the finance reform package and protest an aspect of the bill called the Volcker rule. The idea was developed by former Federal Reserve chairman Paul Volcker as a modern way to crack down on the Wall Street vultures who use their proprietary trading desks to "bet against America." You will recall that some Wall Street firms bet for their own accounts that the housing market would collapse and they won. In the process however, they mislead investors and their reckless trading amplified the crisis for the rest of us. The SEC and the Department of Justice are investigating some of these trades. Now those same firms are backed by the federal government and the taxpayer guarantee. When they gamble, taxpayers are on the hook for their lousy bets.
While the Volcker rule was geared toward protecting taxpayers by cracking down on the reckless proprietary trading of the big Wall Street firms, it would also impact USAA. USAA was concerned about the limitations the rule places on the type of investments an insurance/bank firm could engage in and urged its member to call their Senators over the matter. Thousands did, but many members took up a heated debate on the company's website and Facebook page. Many USAA clients wanted to find a way to support reform and support USAA.
Last week, USAA decided it could do both by supporting the Merkley-Levin amendment to the Senate reform bill. In a message on its webpage and its Facebook page USAA takes credit for the Merkley-Levin amendment and urges passage of the measure: "Senators Merkley and Levin recognize the value and highly regulated nature of insurance portfolio investments made by entities like USAA and have crafted an amendment that will allow USAA to continue to serve our members as we do today. We need your support to ensure that this critical amendment is included in the final bill."
Merkley-Levin strengthens the Volcker rule provisions by including more types of trading in the definition of proprietary trading, and by explicitly banning Goldman Sachs-style conflict of interest trading.
The Merkley-Levin amendment was not created just to aid USAA, but it was crafted to allow an insurance company like USAA whose trading desk is subject to state-level insurance regulation to continue its insurance business without being subject to the Volcker rule restrictions on holding a bank. However, if an insurance company also has a separate hedge fund, private equity fund, or some other Wall Street entity that is not regulated by the state insurance regulator like AIG did, then it would be subject to the restrictions.
Merkely-Levin may come to a vote as early as Monday and a filibuster is threatened. Now we will see which Senators stand with the Goldman Sachs' of the world and which Senators stand with USAA against unethical and possibly illegal proprietary trading.