U.S. House of Representatives
Washington, D.C.  20515

December 10, 2009

Re: Support Rep. Lynch Amendment #135 on governance of clearinghouses and swap exchanges

Dear Member:

Please support the Lynch amendment #135 to the Wall Street Reform and Consumer Protection Act of 2009 (H.R. 4173) which would rein in the potential for conflicts of interest in the governance of clearinghouses and swap exchanges for over-the-counter (OTC) derivatives.  We write individually and also on behalf of Americans for Financial Reform, a coalition of nearly 200 national, state and local consumer, labor, retiree, investor, community, and civil rights organizations who are campaigning for real reform in our nation’s financial system.

The largest swaps dealers are the five “too big to fail” banks, and they expect to earn $35 billion from opaque derivatives trades this year.  Remarkably, these banks have convinced their customers that a return to transparency would be bad for them.[1] Since the banks’ credibility is damaged, they have sent their corporate customers, known as “derivatives end users” to lobby on their behalf. [2] The US economy cannot afford another derivatives meltdown.

Dealer-run clearinghouse would have an incentive to set risk management parameters at dangerously low levels, after dealers such as AIG brought our economy to the brink.  When then-Senator Phil Gramm championed the Commodity Futures Modernization Act of 2000, policymakers were told that they could trust that self-interest would provide financial institutions with adequate incentives to manage their own risks.  Congress would be repeating the same mistake if it allowed these institutions to manage clearinghouses and trading facilities.

We thank you for your efforts to approve and strengthen H.R. 4173 and we ask you to vote in favor of Amendment #135.

Sincerely,

Americans for Financial Reform

Click here to download a copy of this letter (doc).

[2] “The Money Man’s Best Friend,” The Nation, William Greider, November 11, 2009.