This vote was on an amendment by Saxby Chambliss, R-Ga., that would have instituted stronger regulations on certain types of derivatives, replacing language that would simply get rid of those types of financial instruments. The amendment was offered to a bill that aims to close gaps in financial regulations, strengthen oversight of consumer lending and more closely oversee financial derivatives. Derivatives are, in essence, very complex financial contracts that businesses use as a hedge against large changes in the price of some commodities such as gasoline, but that have also become popular with speculators looking to gamble on big profits. Speculation in derivatives, relatively unhampered by regulation, is often blamed for partially contributing to the financial meltdown in 2008.
Specifically, Chambliss’ amendment would have directed the Securities and Exchange Commission (SEC), Commodity Futures Trading Commission (CFTC) and Federal Reserve to watch these kinds of transactions and develop requirements for clearing them, among other items.
Chambliss said “the real problem … is not that we had those products on the market but that the regulators did not have the power and authority and the tools to deal with those products.” And, he noted that “smart folks” in the financial industry are already reading the bill and trying to figure out ways around it.
“How can we in the Congress be sure of the outcome of sweeping reforms without first properly identifying the exact cause of these problems? How can we identify the cause of the problem without authorizing and requiring more transparency through the collection of necessary data?” Chambliss said. “For this reason, I have worked with several of my colleagues to develop an amendment that would require all swap transactions be made known to the appropriate regulators so effective regulation can be applied where necessary.”
Blanche Lincoln, D-Ark., said she worked hard with Chambliss to try to come to a compromise but that they simply ran out of time and that she couldn’t support his amendment in its current form.
“Unfortunately, the amendment being considered today by Senator Chambliss and some of my Republican colleagues does not contain the essential reforms required to ensure the stability of our markets. It creates loopholes and fails to bring the transparency and accountability Americans are demanding of us at this juncture. This amendment would be detrimental to our economy and to our markets,” Lincoln said. “Today this derivatives market is completely in the dark with no—I repeat, no—regulation, no oversight, and no public disclosure. The Dodd-Lincoln bill will bring a completely unregulated market into the light of day for the first time ever. But it is important to point out, it is not regulation for regulation’s sake. The steps we have taken in this bill have meaningful issues in terms of what they are dealing with.”
By a vote of 39-59, the amendment was rejected. All but two Republicans present voted for the amendment. Every Democrat present voted against the amendment. The end result is that the measure went forward without language that would have dropped a ban on certain kinds of derivatives and instead directed federal agencies to regulate those derivatives and institute more transparency.