Too Hard to Understand

Source: Newsweek

Wall Street can't govern itself. We know that now. So you might think that the authorities in Washington would tell the Wall Street lobby where to stick it and insist on a lot more clarity when it comes to trading in derivatives, which until now has been almost entirely unencumbered by government. That appeared to be what the Obama administration was asking for last June when it demanded that all standardized over-the-counter derivatives be traded on an open and supervised exchange, with the Securities and Exchange Commission and the Commodity Futures Trading Commission as the sole judges of what is standardized. That way authorities would know most of what was being traded and could make sure the major players weren't getting in over their heads. But thanks to weeks of intense pressure from Wall Street banks and their customers in corporate America, the bill that was approved on Thursday by Rep. Barney Frank's Financial Services Committee is riddled with exceptions and loopholes, many critics say. If it becomes law, Wall Street's finest could be driving truckloads of new derivatives products through those loopholes for years to come...

...among the toughest critics of his committee's bill is Gary Gensler, the chairman of the Commodity Futures Trading Commission. Gensler was a pro-deregulation guy in the '90s who has gotten some serious religion this time around, and he's turned out to be a far more aggressive advocate of derivatives regulation than even the Obama administration. Gensler pushed Frank's committee to drop some exemptions that would have allowed pretty much anybody to avoid trading on exchanges if they could claim vaguely that they were hedging risk...

...he's worried that the broad exemption for "end-users" of derivatives in the bill—intended to excuse nonfinancial companies that use derivatives to hedge exchange-rate or interest-rate risk—is still a "big regulatory gap." It is a loophole, in other words, that may let many other players avoid regulation, including hedge funds, private-equity funds and other financial firms.

Read more: http://www.newsweek.com/id/217999

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Time to hit the speed-dial again for your members of Congress to demand they close the "end user" loophole.

That doesn't sound good.