Democrats Reject Warren Buffett's Bid for Derivatives Exemption

[Cali_Democrat]

http://finance.yahoo.com/news/Democrats-Reject-Warren-cnbc-2916475766.html?x=0&sec=topStories&pos=1&asset=&ccode=

On Monday April 26, 2010, 2:55 pm EDT

Democrats in the Senate aren't buying what Warren Buffett's Berkshire Hathaway is selling.

The Wall Street Journal reports (subscription required) late this morning that Democrats have agreed to "kill a provision from their derivatives bill pushed by Berkshire Hathaway that would have allowed the company to avoid a significant financial hit." CNBC's John Harwood has confirmed that development with his sources, although John notes the finreg debate still has a ways to go in the Senate, and then in House-Senate negotiations.

The government wants to require companies to set aside collateral to cover potential losses from derivatives contracts. A front page piece (free content) in the printed edition of the Journal earlier this morning said Berkshire and Nebraska Senator Ben Nelson have been pushing to "largely exempt existing derivatives contracts" from the collateral rules. The Journal says Berkshire's argument is "it shouldn't be made to redo existing contracts and that it is already healthy enough to cover its obligations."

But even if the White House and Treasury aren't worried about Berkshire's financial health (and they're not saying one way or the other,) they presumably don't want an exemption provision that would keep the government from requiring more collateral from any number of companies that aren't as careful.

Berkshire has a multi-billion dollar derivatives portfolio, including sizable bets that global stock markets won't be substantially lower 15 to 20 years from the time the contracts were written. In exchange for the "insurance" it is writing against a long-term stock collapse, Berkshire collects "premium" payments up front, which it can use for investments.

Read more at link...http://finance.yahoo.com/news/Democrats-Reject-Warren-cnbc-2916475766.html?x=0&sec=topStories&pos=1&asset=&ccode=

[benld74]

1. WHat IF this takes down Berkshire Hathaway in the same manner??? koinkidink?

[pinto]

2. Kick

:kick:

[Scurrilous]

3. K & R

:thumbsup:

[chill_wind]

4. WSJ:

Mr. Buffett's push is especially notable because he has warned of the potential dangers of derivatives, famously branding them "financial weapons of mass destruction."

The White House has been trying to kill the Berkshire provision on the grounds that it would weaken the government's ability to regulate the enormous market for derivatives. Berkshire Hathaway argued that it shouldn't be made to redo existing contracts and that it is already healthy enough to cover its obligations. The battle over the provision shows how lobbying by businesses and lawmakers to insert just a few words into a complex bill can have a major impact on the country's biggest companies.

(...)

Mr. Buffett has been a vocal critic of how some in the financial markets use derivatives. In making his case for regulation, Mr. Obama in a New York speech last week quoted Mr. Buffett's "financial weapons of mass destruction" remark, which was made in Berkshire's 2002 annual report. In his letter to investors this year, Mr. Buffett, an Obama supporter, wrote that while Berkshire has "long invested in derivatives," the contracts "can be dynamite."

K & R

http://online.wsj.com/article/SB10001424052748703441404575206252252365076.html?mod=WSJ_hps_LEFTTopStories