I earlier blogged Chris Dodd's proposal for financial system reform, here. It's worth keeping up with the discussions that are ensuing on Capital HIll. The banking lobby is working hard to derail tough regulation of derivatives, even the over-the-counter variety.
The New Republic has an interesting article on the current state of the discussion (hat tip to Mark Thoma at economist's view). Noam Scheiber, Could Wall Street Actually Lose in Congress?, The New Republic (Nov. 23, 2009). Apparently, bankers have used a set-up lobbying group--Coalition for Derivatives End Users-- to get their message across. That is, banks want to be able to use derivatives as part of their speculation in the stock market. That use is nonproductive and puts the financial system at risk. The use of derivatives that makes sense is to create hedges for those who are part of the "real" productive (non-financial) economy--manufacturers, farmers, retailers, etc. So bankers have set up an "end users" coalition to be the face of the lobbying effort against derivatives regulation.
Will it work? Barney Frank has perhaps now recognized the need for tough derivatives language to ensure taht speculators can't make an end run around requirements for exchange trading and clearing of derivatives. And Gary Gensler, the head of the Commodities Futures Trading Commission (the regulator that Phil Gramm wanted to be sure did not get a chance to regulate derivatives, back in that fateful December 2000 when the Commodities Futures MOdernization Act was passed to ban regulation of derivatives, without many voting for it understanding what it included or how it would work) seems to be intent on keeping the pressure up to secure regulation of the derivatives. So there appears to be continuing pressure to ensure that derivatives are exchange traded and that banks can't use customized derivatives as a run-around to continue speculating on the economy. (Perhaps all derivatives should be published weekly--pricing, counterparties, custom terms, and all.)
While Congress is at it, it may also be time to revisit the taxpayer-favorable sourcing rules for derivatives contracts.....
Recent Comments