By Norman Kelley

A few weeks ago I posted an article regarding the need for a “bigger stick,” that is, why the government should housed the myriad financial regulatory agencies under one roof in order to monitor the entire financial industry. Well, it seem that some in the financial industry are combining to make sure that the Obama administration’s attempt to regulate the multi-trillion dollar industry is scaled back.

Citing a letter sent to all members of the Senate by a newly formed financial industry trade group, Washington Post reporter Brady Dennis notes that

The Coalition for Derivatives End-Users, organized by groups such as the U.S. Chamber of Commerce, the Business Roundtable and the National Association of Manufacturers, sent a letter to lawmakers last week saying that “some reform proposals would place an extraordinary burden on end-users of derivatives in every sector of the economy — including manufacturers, energy companies, utilities, healthcare companies and commercial real estate owners and developers.” The letter was signed by more than 170 companies and trade associations.

The letter seems to represent a naked rationale for business to go on as usual, with no meaningful oversight of an instrument which led to last year’s financial collapse. As Dennis reminds readers:

In the lead up to the financial crisis, trading in derivatives — securities that derive value from underlying assets, such as stocks, bonds and commodities — swelled into an immense global market, accounting for hundreds of trillions of dollars in deals. Often dubbed the “shadow market,” it allowed unregulated traders around the world to influence and speculate on a vast array of sectors, from how much companies pay to borrow money to the value of currencies and goods such as oil and cotton. Ultimately, derivatives acted as a catalyst in the downward spiral of the economy, and contributed to the meltdown of such financial giants as American International Group.

The trade group seems to be opposed to what is demanded of other securities: being traded in open exchanges which means some form of regulatory oversight. The stakes are extremely high. As The Hill’s Silla Brush reports,

Lawmakers have criticized derivatives, which are tools to hedge risk in a variety of transactions, for exacerbating the financial crisis and crippling firms, such as Lehman Brothers and American International Group (AIG). The market for financial derivatives is made up of trades between two parties without any central or third-party oversight.

The dealer market for financial derivatives is highly concentrated among five Wall Street banks that have recorded billions of dollars in profit on cash and derivatives trades in 2009, despite the crisis. The banks have waged a major lobbying campaign on Capitol Hill to weaken the proposed derivatives regulations.

Financial lobbyists have teamed up with representatives of big business — largely the banks’ clients — to make their case before wary lawmakers.

Lobbyists, lawmakers and federal regulators are looking to alter a range of provisions in the bill…

Ask yourself this: Do you really want the country to repeat what happened last year, when the federal government bailed out banks and insurance companies with taxpayer money? The Coalition for Derivatives End-Users can offer such a response to proposed legislation because there has been nothing like the Pecora Commission, which occurred after the Crash of 1929, to investigate last year’s financial collapse.

Just as such trade groups have every right to organize and express their interest, the government has the duty to hold open and public hearings to ascertain what happened to the nation’s financial industry. Do you know of any such hearings?

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