Some industries cheer derivatives vote

Marketplace Staff Apr 21, 2010

Some industries cheer derivatives vote

Marketplace Staff Apr 21, 2010


Kai Ryssdal: All 12 Democrats and a single Republican on the Senate Agriculture Committee voted to limit derivatives trading today. It wasn’t exactly a surprise. Committee chair Blanche Lincoln said last week she really wants to crack down on the trades that helped push the financial industry right to the brink a couple of years ago. So bank lobbyists may need some consoling tonight. Derivatives are a very profitable business for those banks. But the committee’s vote also recognizes that derivatives do have some legitimate uses.

As Brett Neely reports from Washington.

BRETT NEELY: Though I couldn’t hear corks popping over the phone, Jim May of the Air Transport Association was in a good mood this afternoon.

JIM MAY: We’re delighted with Chairman Lincoln’s bill.

The group he heads represents the airline industry. May says the bill will cut down the speculation on oil. That means less volatility in jet fuel prices and that’s great for airlines. As for the banks…

MAY: If Goldman Sachs makes, you know, $2.9 billion as opposed to $3.4 billion, I’m not going to shed any tears.

The bill will blunt Wall Street speculation, but it’s been designed not to hurt non-financial companies that need to lock in prices on a range of goods. Banks used derivatives for pure speculation that almost brought down the economy. The bill makes speculators trade derivatives on tightly regulated public exchanges. And banks are going to have to put up collateral to buy derivatives.

Airlines, oil marketers and manufacturers successfully argued those rules would be too expensive for them. So this bill exempts companies with a legitimate business interest.

Dorothy Coleman is with the National Association of Manufacturers. She says otherwise the new rules would have taken…

DOROTHY COLEMAN: Money out of their day-to-day business operations, money, capital, that should be going into investing into their business and to job creation.

This looks like a case of getting special treatment, but if airlines and others hadn’t defended the bill, it never would have passed, says Michael Greenberger. He teaches law at the University of Maryland and is a former derivatives regulator.

MICHAEL GREENBERGER: I think it’s a small price to pay to get the kind of comprehensive regulation that the bill otherwise brings to the American taxpayer and the American investing public.

The Senate will now merge this chapter on derivatives into the broader financial reform bill.

In Washington, I’m Brett Neely for Marketplace.

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