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Sunday, November 27, 2022

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U.S. House Panel Votes to Regulate Privately Traded Derivatives, and What’s Next? Another Agency!

Courtesy of Travis

According to Associated Press sources- Democrats banded together in the House Financial Services Committee, overriding objections by Republican and financial lobbyists, demanding increased oversight of Wall Street, 43 to 26.

And what’s next on the agenda?  Approve another part of Obama’s regulatory plans that include the creation of a federal agency solely dedicated to protecting the financial consumer- The Consumer Financial Protection Agency.

(Yet another committee that will need government funding.  Maybe even another Czar too while we’re at it… but what do I know?)

But both measures (the derivatives regulation and the agency creation) will face scrutiny by the House and Senate, where Republicans are likely to strut more power.  But for now, the Democrats are hailing today’s vote as a critical step in exposing the “opaque and growing” (as the AP put it best) $600 trillion global market.

The Treasury’s Assistant Secretary for Financial Institutions Michael Barr states that the bill “is absolutely essential to preserving a strong marketplace, preserving transparency [and] getting incentives right in the system… We don’t want to allow any firm like AIG to be able to engage in derivatives transactions without requiring those transactions be reported and be traded on an exchange…” referring to AIG’s, now infamous, slight foray in credit-default swaps.

Under the proposed bill, (say) AIG would have to conduct any such future transactions on a monitored exchange.  Assuming the people at the helm running the exchange know to spot a problem, it may work?

But Democrats did include an exemption for companies that use derivatives to hedge against risk.  However, beware, companies may lose this “exemption” if regulators see a pattern of activity that places other participants in the transactions at risk.  Again, assuming its really being looked at, or understood for that matter.

Regardless of status- companies are going to have to disclose their trades, and their prices.

Barney Frank, who chairs the panel was quoted as saying “There will be no more hidden trades where we don’t know the price…”

The derivatives bill is complex for Washington, if people participating on Wall Street have a hard time with them, could you imagine the steam coming out of the eye-sockets on Capitol Hill in understanding derivative plays?

Who knows, if all this legislation does get passed and understood- they can call themselves…  um, Capital Hill.

(Wha, wha, whaaaaaaa…..  Don’t forget to tip your waitress.  I’ll be here all week. )

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