Reasons to Hate the US Senate, Part XXVIII

I’m way over my head on the financial regulation bills going through Congress, so I’m not going to go too deep into the specifics. But this line in Noam Schieber’s piece on the subject caught my eye:

And, yet, when you talk to industry representatives, they don’t appear overly troubled by the recent turn of events. Most continue to regard the derivatives provision in Dodd’s bill as a placeholder, which will almost certainly be nudged aside by a compromise negotiated by Democrat Blanche Lincoln and Republican Saxby Chambliss. (The two senators run the Agriculture Committee, which shares jurisdiction over derivatives.) As one lawyer involved in the derivatives industry told me last week, “If they try to push the Dodd bill as currently written on derivatives—it can’t fly.”

Absurd. Let’s recap: Derivatives are dangerous beasts that played a large role in causing the current economic downturn. But here’s the thing: not all derivatives were really to blame. Only the exotic ones like credit default swaps played a role in causing the mess we’re in now. The derivatives handled by the Agriculture Committee,  though, are very very unlikely to be exotic. They’re the plain-jane, relatively boring ones like futures contracts (think Dan Aykroyd slinging orange juice deals in Trading Places) that aren’t any threat to macroeconomic stability. (As usual, Yglesias beat me to explaining all this.)

Thus Lincoln and Chambliss have virtually no business acting like gatekeepers to the current reforms. The Ag Committee’s control over derivatives-related legislation was never intended to cover a multi-trillion dollar CDS market, most of which has nothing to do with the agricultural sector of the economy. In a sensible world, they’d rubber-stamp this thing after being assured that its effects on agricultural futures and options contracts would be minimal. But we don’t live in that world; we live in a world where the financial industry can prevent any meaningful financial reform simply by cozying up to the more conservative senators who usually run the Agricultural Committee. Now if you’ll excuse me, I think I’m going to take a nice long drink of corn whiskey as a toast to Blanche Lincoln.

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