June 11, 2010
Chairman Christopher Dodd
United States Senate
Washington, DC 20510
Chairman Barney Frank
United States House of Representatives
Washington, DC 20510
Dear Senator/Representative:
We write on behalf of Americans for Financial Reform, an unprecedented coalition of over 250 national, state and local groups who have come together to reform the financial industry. Members of our coalition include consumer, civil rights, investor, retiree, community, labor, religious and business groups as well as Nobel Prize-winning economists. We support strong derivatives regulation and oppose weakening amendments to the derivatives language passed by the Senate.
Reckless swaps and derivatives trading played a critical role in the financial crisis, turning the fallout from the crash of the domestic housing market into a global economic catastrophe. It is critically important to preserve the Senate bill’s stronger stance on derivatives. Nobel prize-winning economist Joseph Stiglitz makes the case for the Senate derivatives chapter plainly, by stating, “If [Congress] fails to pass strict oversight of dangerous over-the-counter derivatives and swaps the U.S. economy will continue to be vulnerable to significant financial risk.”
The Senate derivatives language constitutes a common sense approach to derivatives regulation that allows only commercial end-users that are hedging commercial risk to choose whether to clear their swaps while ensuring that risky financial institutions are required to clear and exchange trade all standardized swaps. The Senate language strikes the right balance. Any effort to expand the end user exemption to include additional market participants, such as financial institutions, would weaken the bill to the point of inadequacy.