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The Power of Public Comments

The Power of Public Comments

Photo: Akshat Tewary and Alexis Goldstein of Occupy the SEC discuss their 325-page comment letter with Felix Salmon of Reuters. 

In March, Occupy the SEC met with the Securities and Exchange Commission, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency and the Federal Reserve to present its 325-page public comment letter recommending that the Volcker Rule—a new regulation to limit Wall Street's most outrageous and dangerous behavior—be strengthened rather than gutted. Here's an insider scoop from the NYC-based working group on how a collection of students, finance insiders and activists went up against the big banks' lobbyists and became advocates for the 99%.

We know this much: the game of lawmaking is rigged. Moneyed interests lobby Congress and finance legislators’ campaigns, ensuring that Congress will pass laws that benefit them. But as much as the lawmaking process itself is unfair, there is another equally unfair part that receives far less attention: the rulemaking process.

Congress passes statutes, which serve as the framework for new regulations. It is then the job of regulatory agencies like the SEC, EPA and FCC to actually write those regulations. This is known as the “rulemaking process.” And thanks to a law from 1946 called the Administrative Procedure Act, regulators are required to request comments from us—the public—on new regulations.

So far so good. The problem is that it's not just individuals who can weigh in during the comment process. Regulators also accept comments from the very industries that their rules are meant to regulate. Worse still, those industries, their trade groups and their lawyers often make up the majority of the comment letters received on newly-proposed regulations. Occupy the SEC wanted to draw attention to this flawed process and to offer a different voice.

Enter the Volcker Rule

In October 2011, a draft version of a new regulation dubbed The Volcker Rule was released by four government agencies: the SEC, FDIC, OCC and the Fed. They requested public comment on this draft by February 13, 2012. Occupy the SEC, a working group in the NYC-based Occupy Wall Street movement, was formed with a principal goal: to submit a public comment that pushed for a stronger, not weaker, Volcker Rule. Our adversaries in this effort? All the major banks that will be regulated by the rule. The banks cry that the rule is too restrictive. Occupy the SEC aimed to outline the ways in which it is far too lenient.

The main purpose of the Volcker Rule is to stop banks from playing casino with our economy. After their criminal recklessness, big banks received unprecedented levels of taxpayer-funded bailouts—to the tune of $7.7 trillion total in loans, and $16 trillion by some estimates, which the Fed tried to keep secret. The Volcker Rule aims to prohibit banks from doing two things:

1. Proprietary Trading
2. Owning more than 3% of a Hedge Fund or Private Equity Fund

Proprietary trading is essentially gambling. It occurs when a big bank buys or sells products with the hope of making a profit. Much of the massive losses in 2008 were due to the banks' proprietary holdings on toxic mortgage products like collateralized debt obligations (CDOs) and mortgage-backed securities. To take just one example, Merrill Lynch lost $26 billion in 2008 alone due to bad bets on CDOs. These bad bets, which almost everyone at the big banks placed, were enough to bring down the entire economy.

Hedge funds and private equity funds are also places where big bets are made—either through trading or investing in businesses. Banning proprietary trading without banning hedge fund or private equity fund ownership would make the Volcker Rule a toothless piece of legislation, so both parts are important.

But here’s the problem: the draft of the rule the regulators released in October was riddled with loopholes. You can’t proprietary trade, the rule says, unless it’s done via market making. You can’t own more than 3% of a hedge fund, the rule says, except in the first year, when banks can own 100%. And the banks can even ask for a one-year extension after that. In short, the loopholes combine to make a rule that is ripe for evasion by the big banks.

A Book Club is Born

Occupy the SEC wanted to shine a spotlight on these loopholes. So we created a book club, with the Volcker Rule as our book. We assigned weekly readings and met to discuss them. We started meeting in a diner near Liberty Square, until management got fed up with our long meetings and asked us not to come back. That's when we switched to the Atrium at 60 Wall Street and began meeting there twice a week.

The draft of the Volcker Rule contains a series of questions that regulators wanted the public to weigh in on: 395 questions to be exact. As we discussed the reading, we debated our answers. A very long collaborative online document became home to our consensed-upon answers to the questions, in bullet-point form.

Then, when we finished reading the Rule, we split up the questions among the group. As we wrote, we tried to use the consensus process as much as possible. Group members were free to block any parts they strongly disagreed with. When all the writing, copy-editing and footnoting was done, we had our comments letter: all 325 pages of it.

While daunting, this process was made possible by the commitment of the group. Our shared enthusiasm and ideas helped turn what could have been a boring slog through a massive, legal document into lively debates and discussions about the best way to plug the loopholes. While our group includes former financial professionals and lawyers, half of us were merely careful readers without financial or legal backgrounds, but with the patience and interest to commit to the task.

Looking to the Future: Occupy Rulemaking!

Many within the Occupy movement feel that our political system is so broken that it cannot be reformed—that we must start from scratch. Others feel that we must do what we can to reform the current way that rules are written and enforced. Here’s another option: do both! Our effort with the Volcker Rule aims to reform the current structure, yet it doesn’t mean we aren’t interested in developing alternative systems now and in the future. We took a pragmatic approach because it seemed that not pushing for a stronger Volcker Rule would be a wasted opportunity. The Administrative Procedure Act is meant to allow public comment and make for a more democratic regulatory process. Instead, it has turned into an arena where the companies being regulated have far too much influence over the very rules designed to regulate them. It is unjust, and we are doing our part to change it.

We have received media coverage and praise from unexpected sources. But we still don’t know how our comment letter will be received by the regulators. We have scheduled appointments to meet with them to discuss our points; this will be the next phase of the fight. The regulators, who have until July 21 to release the final version of the Volcker Rule, must cite the comment letters they received in the discussion section of their Final Rule. Let's see how many times they cite letters from Occupy the SEC versus letters from the banks.

In addition to our letter, we’ve created an online petition for people to sign and register their support for our proposed changes to the rule. On February 13, we marched to the New York Fed and the SEC with fellow occupiers, echoing the message to regulators: protect the people, not the banks.

The Administrative Procedure Act allows for public comments on all new substantive regulations. So whatever your passion or area of expertise, chances are there is a new regulation out there right now that's in a public comment period, just waiting for you to Occupy it! The Commodity Futures Trading Commission, yet another financial regulator, released its own nearly identical version of the Volcker Rule and the comment period is open until April 16. So hop on over to and find that regulation you want to get to know. Only together can we stand up to moneyed interests and ensure that the voice of the people is stronger than the voice of corporations. Occupy the Comment Period!

Occupy the SEC is a working group within the NYC-based Occupy Wall Street movement. Learn more about Occupy the SEC.


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