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Derivatives, those obscure financial products built off the value of other assets, have their historical roots in agriculture. Farmers and investors would place bets against the harvest as a way to hedge against the uncertainty involved in making your living off of raising food. The derivatives market is now a several hundred trillion dollar, highly complex financial market, but the congressional agricultural committees still hold legacy jurisdiction over regulating it.

TNR's Noam Scheiber has a great piece on the state of financial reform in the Senate, describing an emerging strategy to put some relatively strong consumer protections in the bill while giving Wall Street much of what they want in areas that the public isn't paying attention to. Derivatives reform -- or the lack therof -- is likely going to be the area where Wall Street gets their biggest win, and the Senate Agriculture Committee is set up to be the driving forces behind delivering it.

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Lincoln, Chambliss Take Over Derivatives Reform

April 2, 2010 - by Donny Shaw

Now that health care is done, the next big issue Congress will take up is reforming regulations of the financial market. Most of the attention paid to financial reform so far has been on two areas -- addressing the problem of too big to fail and consumer protections for financial products. Both important, but there's a lot more to the bill that people aren't talking about.

For example, the bill is expected to at least partially reverse the Commodity Futures Modernization Act of 2000 and restore some transparency to the over-the-counter derivatives market. Sounds arcane, but it's actually a really big deal and it goes to the heart of what turned a mortage crisis into a systemic financial crisis in 2008.

 

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