On Thursday evening, a roomful of people more accustomed to fighting each other met to unite against a common enemy: Wall Street.
The forces that are gathering against the bankers include energy companies, airlines, truckers, farmers and other end users of derivatives, along with unions, consumer advocates and a host of progressive organizations.
"I can't think of anything where such a diverse group has come together. Some of these organizations don't see eye to eye on anything," said Jim Collura, a lobbyist with the New England Fuel Institute and a lead organizer behind the Commodity Markets Oversight Coalition (CMOC), which includes end users of derivatives such as corn or gas futures. The businesses rely on futures contracts to hedge against the risk of price spikes or declines.
A senior administration official who addressed the coalition partners at the meeting would have been considered just as unlikely a bedfellow a year ago. Gary Gensler, now the chairman of the Commodity Futures Trading Commission (CFTC), spent nine years with Goldman Sachs and, as a Treasury official in the '90s, pushed the type of deregulation that contributed to wild speculation in derivatives and helped bring about the financial collapse. For those sins, Sen. Bernie Sanders (I-Vt.) put a hold on his nomination to the CFTC. He eventually let him move through, convinced that Gensler had seen the error of his ways.
Close observers of the fight to reform Wall Street say that Sanders's judgment has been proven wise and that Gensler has been one of the strongest advocates for reform within an administration often seen as too sympathetic to the financial services industry.
"The meeting went fantastic," said Collura, who had been worried that the differences between the groups would prove irreconcilable. "I think everybody expected little and walked away with a lot."
Graham Steele, policy counsel with Public Citizen's Congress Watch, said that Gensler offered the groups encouragement and the full support of the administration.
Some coalition members pressed Gensler on the administration's commitment to reform, given that Treasury Secretary Tim Geithner has pushed for a wide range of exemptions that could allow speculators to continue to trade in the dark rather than on an exchange similar to the New York Stock Exchange.
"The White House believes in reform," Gensler told the group, according to Steele, though there were lingering doubts among some participants. "They've been arguing for almost as many exemptions as industry," Steele said of the Treasury Department.
Gensler, however, exhibited little sympathy for the financial industry's arguments against reform. Wall Street traders insist that if derivatives are regulated too tightly, or if firms are limited in the size of the positions they can take, then capital will simply move offshore and cost American jobs.
Gensler is ready to call their bluff. "He thinks they'll try to evade regulations in another way," said Steele. Indeed, every reform proposed for Wall Street -- or for London, for that matter -- over the last century sparked warnings that business will go elsewhere. But, overall, the threats never end up materializing because capital isn't an abstraction that floats as freely as the wind -- as Wall Street portrays it -- but is rather the resource at the foundation of real businesses that have office space, fax machines, gym memberships and employees with children in private school.
"They're going to be uprooting everything? It just doesn't make sense," says Steele, echoing Gensler. "They always threaten to leave and they never do."
What they will do instead, Gensler told the group, is much more logical: Look for ways to water down the legislation or root around the regulations.
Wall Street is furiously engaged in both steps now. The formation of the reform coalition is a direct effort to challenge derivatives dealers and Wall Street traders who have marshaled an army of little guys to lobby Congress against reforming the way that derivatives are traded. The traders like to use these surrogates because the financial crisis has cost them their esteem in the eyes of the public.
Meanwhile, hedge funds are preparing for regulation that would curb speculation. Several end users in the meeting with Gensler said that they'd seen hedge funds and other investors begin to purchase the physical product that underlies the derivatives. In other words, hedge funds that want to speculate on corn futures are going out and actually buying corn, as well. Then, when the regulations are in effect, they can claim to be commercial end users.
Collura said the group is a bit flummoxed at how to respond to such efforts. It shows, he said, how much surplus profit exists in speculation that traders are willing to buy physical commodities they have no use for.
The lack of transparency in the market, however, primarily benefits Wall Street dealers, since only they know the real difference between the bid and ask prices. "These rules would obviously impact the largest banks and brokers that benefit from the current market setup," reads a fall Citigroup report on the proposed regulations. "The shift to exchanges is expected to reduce profitability as a result of more market transparency... Exchange trading will likely reduce bid/ask spreads and require dealers to share economics with exchanges."
Collura said that the first step the new coalition plans to take will be to walk the halls of Congress to let senators know that the end users trotted out by the banks don't represent the interests of all small businesses. "There are some people who ware skeptical about our chances to get a strong bill out of the Senate. The new commitment to make a coordinated effort has given us some hope," said Collura.
The new coalition is essentially made up of the end user group CMOC and Americans for Financial Reform, a coalition of unions, consumer advocates and progressive organizations.
The group is outgunned by Wall Street, but ready for the fight, Collura said. "We can't match them with dollars," he said. "But I think we can and will reach out to the American public, because I think the American public realizes that Wall Street interests are basically negotiating the terms of their own medicine. There could be a huge backlash and the president and Democrats in Congress don't want that to happen."