Major Loophole In Senate Financial Reform Bill, Derivatives Reform May Be Illusory

[laughingliberal]

The pending financial reform bill in the Senate may not accomplish President Barack Obama's goal of reforming the unregulated derivatives market, potentially wasting the nation's best opportunity to fix a broken financial system and tarnishing the legacy of those claiming to clean up the markets.

A section of the bill dealing with derivatives, financial instruments that transfer risk, contains a major loophole, according to an email from a consumer-advocacy organization to the Senate Banking Committee obtained by the Huffington Post. The loophole is wide enough to undermine the whole effort to reform a part of the financial market -- those derivatives traded between financial firms, like AIG, outside of any government oversight -- that's largely blamed for worsening the financial crisis.

"The derivatives market is where a lot of the big, risky financial bets by companies like AIG took place," Obama said on April 16. "There are literally trillions of dollars sloshing around this market that basically changes hands under the cover of darkness. When things go wrong, as they did in AIG, they can bring down the entire economy, and that's why we've got to bring more transparency and oversight when it comes to derivatives and bring them into a framework in which everybody knows exactly what's going on, because we can't afford another AIG." The president added that he would veto legislation that "does not bring the derivatives market under control."

The financial regulatory reform legislation, which is being shepherded through the Senate by Banking Committee Chairman Christopher Dodd (D-Conn.), attempts to rein in the OTC derivatives market by mandating that most trades go through a clearinghouse, a facility that executes trades for parties that are required to post collateral and mark their positions daily to prevailing market prices. So, rather than two financial firms trading with each other -- with no oversight -- they'd now have to go through this central point. It would shed more light on the market and allow for government regulators to more effectively police it, reformers and Obama administration officials argue.

More at link: http://www.huffingtonpost.com/2010/05/16/major-loophole-in-senate_n_577562.html?utm_source=Politics

Is anyone else sick of the phrase, "wasting the nation's best opportunity..." And why is it always the Senate involved when we see it?

[Rex]

1. Wow, so the crooks can just keep on stealing?

As if we didn't have enough to deal with...and we haven't even begun dealing with the crimes of the last 8 years!

Man, we are screwed if our reps don't start doing a GOOD job. AIG is one of the reasons we are in this mess.

[katandmoon]

2. Now that's a shocker