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House Dems Stand Up for the Senate's Tough Derivatives Language

June 23, 2010 - by Donny Shaw

The derivatives chapter in the Senate’s financial reform bill is stronger than the House’s version in just about every way imaginable. Not surprisingly, convincing finical reform conference committee members to choose the House derivatives language over the Senate language has been big-bank lobbyists’ top priority in the past few weeks.

The vote on derivatives will take place tomorrow, and despite a lot of centrists recently adopting the banks’ position, a trio of relatively moderate House Dems — Rep. Rosa DeLauro [D, CT-3] (pictured), Rep. Bart Stupak [D, MI-1] and Rep. Jackie Speier [D, CA-12] — are pushing back hard. They circulated a letter today urging the Senate derivatives language to be kept in tact and implying that any actions by the conference committee to weaken the language could cost Democratic votes from the left. They are asking for Democratic House colleagues to sign on.

UPDATE: The letter now has at least 50 signatures in the House.

Here’s the full letter:

Dear Conferees:

We write to urge you to preserve the strong Senate language regulating the derivatives markets in the final financial reform legislation.  Effective regulation of the $600 trillion derivatives market is fundamental to our financial security because the significant unregulated over-the-counter market was a fundamental cause of the financial crisis and without change will remain an ever present danger.  Effective regulation also is necessary because unchecked speculation in these markets causes price fluctuations in vital commodities including food and oil that hurt businesses and consumers.

Warren Buffett has called unregulated derivatives ‘financial weapons of mass destruction’ and Nobel prize-winning economist Joseph Stiglitz asserted, “If [Congress] fails to pass strict oversight of dangerous over-the-counter derivatives and swaps the U.S. economy will continue to be vulnerable to significant financial risk.”

In particular, we strongly urge you to preserve the following aspects of the Senate bill:

Broad clearing and exchange trading requirements to make the market safe

The Senate bill applies crucial elements of derivatives reform including requiring transparency and the posting of margin to make the system safer for approximately 90 percent of all trades.  The House language would exempt 40 to 50 percent of transactions.  Despite Wall Street claims to the contrary, the Senate language excludes businesses using derivatives trades to hedge commercial risk from these requirements, although it permits them to clear and exchange trade.

Where it differs from the House bill is in clearly limiting exceptions to commercial entities hedging commercial risk.  The House language would allow financial firms to take advantage of the exceptions it provides, creating an enormous loophole, while the Senate language expressly prevents financial firms from doing so.

Reporting requirements that allow regulators and participants to understand the market 

The Senate bill requires real time reporting to regulators and the public on transactions in the multi-trillion dollar derivatives market, allowing businesses that use swaps to shop around for the best prices, and ensure that regulators can monitor the markets to prevent systemic risk.  Conversely, the House language would allow the public to see only “aggregate” data from swaps transactions. This means that businesses would not be able to access information to allow them to shop for best prices.

Capital and Margin Requirements

The Senate bill ensures that whenever a financial institution trades swaps there are clear capital and margin requirements to increase stability in our financial markets.  We are concerned that the House bill’s ambiguous language creates a loophole that could allow any financial institution that is not ‘systemically risky’ to trade swaps without money to back up its trades.

Fiduciary Duty

Revised Senate language collaboratively drafted between the Senate Agriculture and HELP Committees imposes a heightened standard of care on swaps dealers when they give advice or recommend swaps transactions to government entities, pension funds, endowments, and retirement plans.  This is essential to combating the kind of abuses that have left government entities and non-profits across the country struggling under staggering derivatives-related debts, and to giving essential protections to less sophisticated institutional investors, including pension funds and endowments, and the taxpayers and workers on whose behalf they invest.

Separation of derivatives market making from commercial banking (Section 716)

The Senate bill includes important provisions that remove the ongoing Federal subsidy to the derivatives businesses of the five large banks that dominate this market.  This language will help ensure that taxpayers are not supporting this risky activity with deposit insurance or other benefits.  It will increase transparency and safety by making sure that derivatives market making activities are separately capitalized. As a result, it will also redirect bank capital towards lending and investment in Main Street, rather than empty speculation. 

It is crucial to ensure that the legislation is effective by closing the enforcement gap left when the Senate Banking and Agriculture Committee versions of the bill were combined, and ensure that rules cannot be evaded by clearinghouses simply refusing to clear trades that the regulators have ordered to clear.  Rules to prevent domination of the clearinghouses by the biggest traders, like the language of the Lynch amendment in the House, in addition to the rulemaking authority on conflicts of interests provided to the regulators in the Senate bill are also important.

Thank you for your attention to these important issues.

Sincerely,

Rosa DeLauro

Bart Stupak

Jackie Speier

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Comments

  • tiredofbeingtired 06/24/2010 5:30am

    Honestly I have no clue what this means. It’s just more talk that the average citizens is really tired of hearing about. I understand they want to make sure that what they have to say is not sugar coated, but let’s just get to the point of all this shall we…talk is cheap. Action is what we need and want!

  • Comm_reply
    Chris51 06/27/2010 9:48pm

    The Wall Street Journal reported that American corporations have increased their cash reserves to $1.84 TRILLION, the highest figure in history. Big business and the banks, after an unprecedented bailout by the public treasury, are hoarding the funds that could put millions back to work. The cash reserves of major corporations have jumped 26 percent in one year, the largest percentage increase in nearly 60 years. The cash reserves of working people, and particularly the unemployed, have not been so fortunate.
    A UNANIMOUS REPUBLICAN bloc, against the bill for extended unemployment benefits. Congress that rushed through a $700 BILLION bailout of Wall Street in Oct2008. Congress cannot bring itself to support even the most meager subsistence for the unemployed workers who are the victims, not the perpetrators, of the economic crisis… change.org
    http://www.change.org/petitions/view/we_demand_an_immediate_passage_of_bill_hr_4213_extension_of_unemployment_benefits

  • Comm_reply
    Chris51 06/30/2010 6:55am

    • It’s the Republican party who is busy watching out for Wall Street/Corporations.
    Shame on Congress for not coming up with a solution for ALL its’ displaced hard working Americans.
    • 9.7% unemployed = 1.2 million Americans, and 55% of the workforce have taken reduced work hours, pay-cuts, unpaid leave, forced to switch to part-time. The BP Oil Corporation’s irresponsibleness is adding to lost jobs and lost lives.

    Yesterday, President Obama’s discussed what was happening with corporations, the economy, and the need to help the displaced unemployed. Watch his entire interview on CSPAN. He gets it.

    CNN and FOX only report on self-interested, with their main story and topics cycling 24 hours. Go to CSPAN
    CSPAN: http://www.c-span.org/Watch/Media/2010/06/29/HP/A/34826/Pres+Obama+Remarks+on+the+Economy.aspx

    wwww.change.org

  • Comm_reply
    Chris51 06/30/2010 10:43pm

    The Senate needs to be held accountable for their incompetence and lack of integrity. Shame on them for not coming up with a 100% solution for all Americans who are forced to survive on their UI.

    President Obama can’t sign a bill, if Congress doesn’t get it to him. President Obama’s discussed the economy, and the need to help the displaced unemployed with UI Extentions on Monday and Tuesday. CSPAN.ORG

    As of today, we have 9.7% unemployed, 55% of the workforce have taken reduced work hours, pay-cuts, unpaid leave, forced to switch to part-time, and BP Oil Corporation’s IRRESPONSIBLENESS is adding to LOST JOBS and LOST LIVES.
    1.2 million who will lose their Unemployment Insurance if Republicans get their way.

    The GOP have no vested interest in hearing or helping jobless people. The only communication Republicans hear is $$$$$. That’s why they listen to and only support Oil Companies, Insurance Companies, Banks, Big Corporations, and Wall Street

  • Comm_reply
    Chris51 07/01/2010 9:04am

    Corporations have increased their cash reserves to $1.84 TRILLION, THE HIGHEST FIGURE IN HISTORY! Big business and the banks, after an unprecedented bailout by the public treasury, are hoarding the funds (Americans pay this back on their IRS tax bill). BIG CORPORATIONS EXECUTIVES ARE MAKING BIG BONUSES AND GETTING SALARY INCREASES FOR SHOWING HUGE PROFITS. The cash reserves of major corporations have jumped 26 percent in one year, the largest percentage increase in nearly 60 years. The cash reserves of working people, and particularly the unemployed, have not been so fortunate.

    REPUBLICANS bloc, the SENATE vote and defeat sevaral proposed extension of unemployment benefits for unemployed workers. Many of these same Senators rushed through a $700 BILLION bailout of Wall Street in 2008 in a matter of days, cannot bring itself to support even the most meager subsistence for the unemployed workers who are the victims, not the perpetrators, of the economic crisis.
    WWW.CHANGE.ORG

  • Comm_reply
    Chris51 07/08/2010 7:19pm

    GOP are determined to bloc everything the President is trying to do for the USA right now. He has a vested interest, and seems to take pride in doing the best job he can while in office.
    We are in trouble as long as Republican politicians continue favoring their special interest.
    How can any CEO or Owner of business get anything done if half of his managers or executives stand in his way just to be defiant.

    President Obama speech on CSPAN today, while in Kansas City, MO to support a future candidate. Was right on.
    If you are an unemployed American, and are thinking no one understands the difficulties of being jobless. Obama speech articulated the financial and emotional struggles well. Hat’s off to the President for saying what needed to be said.

    http://cspan.org/Watch/Media/2010/07/08/HP/A/35248/Pres+Obama+Remarks+at+Fundraiser+for+Missouri+Senate+Candidate+Robin

  • Comm_reply
    Chris51 07/08/2010 7:19pm

    Senator’s excuse for not passing is a false statement.
    Read all about it:
    The funding argument is even harder to swallow. I’d be more sympathetic with these new converts to fiscal responsibility if they were as enthusiastic about paying for extending $32 billion worth of special interest tax breaks as they are about funding the unemployment extension. If I understand correctly, these lawmakers insist that Congress fund every dime of added jobless aid, which nearly all analysts agree will help boost the economy. But they feel no need to pay for continuing these special interest tax breaks, which will not.
    Full Story:
    http://www.csmonitor.com/Money/Tax-VOX/2010/0707/Senate-struggles-with-unemployment-benefits

  • Chris51 06/29/2010 11:21am

    President Obama gets it. The GOP who are busy watching out for Wall Street/Corporations. Shame on Congress for not coming up with a solution for all its unemployed americans.

    Watch President Obama discussion on this earlier today, go to CSPAN.
    http://cspan.org/Watch/Media/2010/06/29/HP/A/34826/Pres+Obama+Remarks+on+the+Economy.aspx

    Then go to wwww.change.org
    http://www.change.org/petitions/view/we_demand_an_immediate_passage_of_bill_hr_4213_extension_of_unemployment_benefits

  • Chris51 07/03/2010 10:06pm

    REPUBLICAN FILIBUSTER ON UI EXT BILLS!
    Why don’t our Senators get that there is a great need?

    The job market is broken.
    The corporate executives are not going to give up their year-end profit bonus by adding jobs/payroll to their companies.

    Here are a few stories on our jobless nation:

    Job recovery hits a wall
    http://money.cnn.com/2010/07/02/news/economy/jobs_june/index.htm

    Job gloom at all time high
    http://money.cnn.com/2010/07/03/news/economy/discouraged_workers/index.htm

    7.9 million jobs lost- many forever
    http://money.cnn.com/2010/07/02/news/economy/jobs_gone_forever/index.htm

    Jobless claims spike
    http://money.cnn.com/2010/07/01/news/economy/jobless_claims/index.htm

    Thousands at risk for losing unemployment benefits
    http://www.myfoxphoenix.com/dpp/money/job_news/unemployment-benefits-jeopardy-6-28-2010

  • Chris51 07/07/2010 9:15pm

    CNN has actually screened and blocked several comments/blogs that expose the truth about the Republican Senators in regards to the UI Ext bills.

    Here are some stories written with very accurate reporting of the UI Ext Crisis.

    The unemployment emergency
    http://www.washingtonpost.com/wp-dyn/content/article/2010/07/05/AR2010070502658.html?hpid=opinionsbox1

    Senate struggles with unemployment benefits
    http://www.csmonitor.com/Money/Tax-VOX/2010/0707/Senate-struggles-with-unemployment-benefits

    Calls to Suicide Hotlines Skyrocket Along with Unemployment
    http://uspoverty.change.org/blog/view/calls_to_suicide_hotlines_skyrocket_along_with_unemployment

  • Chris51 07/10/2010 7:08am

    Republicans filibustered UI Ext bill! They’re asking for UI Ext be paid, while at the same time they’re fighting to give their Special Interest groups special tax stimulus. Rep are trying to look like they care about the deficit, but for 10 yrs (Bush Admin) they never spoke of concerns for the huge deficit they were digging us into as they approved large spending for Special Interest. The Rep debate on these UI Ext bills are like “broken record”. They want USA to use the stimulus money that is already committed to the agreed upon projects, programs, etc. Republicans want USA to “rob Peter to pay Paul”, so they can try to prolong the problem past November election. This is how they have operated for YEARS, and we’re in worse shape now because of their IRRESPONSIBLENESS. People should not be in Leadership positions if they cant make decision for the problems at hand.
    Dont take my word for it. Please read links Donny Shaw and others have provided with accurate research and reporting.

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