Saxby Chambliss and the fight over derivatives

Political Insider: 

Georgia’s senior senator is in a head-to-head battle with Democratic committee chairwoman Sen. Blanche Lincoln over her version of Wall Street reform legislation that is scheduled for a committee vote Wednesday.

Lincoln has said her legislation will “end the days of backroom Wall Street deals” and prevent future bailouts of big financial firms.

But Chambliss argues it also will cause in a serious crunch on the financial industry and consumers alike.

“We’re going to put a lot of people out of the business of hedging their bets,” Chambliss said. “What that’s going to do is cause energy prices to go up, (cause) consumer prices to go up.”

Lincoln’s bill, which would be melded into a bigger Senate banking bill, would substantially limit how banks and other financial institutions trade derivatives, those risky investments that helped cause the meltdown of financial markets. Banks that don’t play by the new rules would be barred from receiving federal assistance if they got into financial trouble.

Why the Senate agriculture committee is involved in Wall Street reform is almost as confusing as derivatives themselves.

Basically, it’s because derivatives were once known more for their use in farming than high finance.

Farmers can buy derivatives, known as futures contracts, that guarantee set prices for crops, helping guard against major price swings because of natural disasters or other reasons.

Wall Street, of course, took that idea of derivatives to new levels. But the Senate agriculture committee never gave up its power on how derivatives are regulated.

Posted via email from Jim Nichols for GA State House