GOP’s Grassley Joins Democrats in Passing Limits on Derivatives

Washington – The Senate Agriculture Committee on Wednesday approved by 13-8 tough new curbs on derivatives, the financial tools that had a big role in triggering the 2008 financial crisis. The vote sent a strong signal that a broader financial regulatory overhaul is within reach of enactment.

Sen. Charles Grassley, R-Iowa, joined 12 committee Democrats in approving the new derivatives limits, the first time this year that a Republican senator has sided with the opposition on sweeping financial legislation. Other Republican members also talked in conciliatory terms.

The derivatives vote was the final, and probably the most difficult, hurdle for the bill before it reaches the full Senate, perhaps as soon as Thursday. The derivatives curbs are expected to be added to comprehensive overhaul legislation that would change how financial institutions are regulated.

‘Wall Street’s interests are different from Main Street’s. … Wall Street’s interest is to keep inefficient markets. This (legislation) is to provide efficient markets,” said Commodity Futures Trading Commission Chairman Gary Gensler, who worked at Wall Street financial giant Goldman Sachs for 18 years.

The Agriculture Committee measure would bring new transparency to a market that’s thrived on private, often asymmetrical information flows that critics think have worked to the benefit of Wall Street and the detriment of ordinary people.

The legislation would require standard trading in complex financial instruments called derivatives to take place, at minimum, through clearinghouses, where there’s a referee between private parties.

Many portions of the vast derivatives market, valued in the trillions of dollars, also would have to be traded on an exchange. This could shift some financial clout from Wall Street to President Barack Obama’s home city of Chicago, where the Chicago Mercantile Exchange would be a big winner.

Both the clearinghouses and exchanges would trigger far greater reporting to regulators about trades, giving the government a greater understanding of these murky markets than now exists.