AFR Statement on October 12th House Agriculture Committee Hearing

Washington, DC – Americans for Financial Reform, a coalition of more than 250 national, state and local organizations working together for strong Wall Street reform, issued the following statement today:

Today’s House Agriculture committee hearing is a loophole festival for the big swaps dealers. The Committee is considering seven different pieces of legislation. Almost every one of them would carve a significant loophole in the new derivatives protections created by the Dodd Frank Act.

Every analysis of the 2008 financial crisis has concluded that the shadow markets in unregulated over-the-counter derivatives played a crucial role in crashing our economy. In that case, the price of a failure to regulate derivatives was millions of jobs and trillions of dollars. Even before 2008, unregulated derivatives played a central role in scandals ranging from the bankrupting of Orange County to the exploitation of energy consumers by the Enron corporation. Congress should not be helping the big swaps dealers and traders to undermine badly needed derivatives market safeguards before they have even been implemented.

Some examples of the proposed loopholes include:

• HR 2682 would have the effect of exempting the trading desks of big commodity and energy companies – even when they are trading on a purely speculative basis – from any requirement to put up collateral to back up their derivatives bets. The next Enron would be exempted from key derivatives safeguards under this law.

• Representative Hultgren’s discussion draft would exempt significant dealers in swaps from all the new protections passed in the Dodd Frank Act, including requirements that they treat their customers fairly and back up their bets with collateral. Swaps dealers could apparently qualify for these broad exemptions so long as they could argue that the swaps were traded for their own account or were ancillary to their business. The next AIG could avoid swaps oversight under this law.

• HR 2586 would undermine exchange trading reforms in the Dodd Frank Act. It would allow big Wall Street derivatives dealers to continue opaque bilateral trading and allow them to avoid price transparency and fair price competition.

• Draft legislation entitled “The Pension Plan Risk Reduction Act” would loosen protections preventing swaps dealers from selling exploitative products to public entities and pension funds. Under this proposal, swaps dealers could evade requirements to take their customers best interests into account when selling complex swaps to cities, towns, schools, and pension funds safeguarding retirees’ money.