Corker: 'The Big Piece That Was Not Going To Be Ready Was Derivatives'

Derivatives reform doesn't get as much news play as other pieces of the financial-reform debate (I'm looking at you, CFPA). Maybe it should.

"The big piece that was not going to be ready was derivatives," Bob Corker said today, after Chris Dodd said he'd introduce a Senate bill without any Republican support.

And Brad Miller, a Dem who voted for the finance bill the House passed in December, told Planet Money's Alex Blumberg that the section on derivatives was "the part of the House bill that was weakest."

A type of derivative called a credit-default swap played a key role in the financial crisis. Like many other derivatives, credit-default swaps are traded over the counter — there's no public exchange, no central clearinghouse, so it's hard to know what's going on in the market.

Democrats and Republicans agree more derivatives should be traded on public markets. But they disagree over some details, including what exclusions and exceptions businesses should get.

The Chamber of Commerce and other business groups have argued that certain businesses that use derivatives to protect themselves against risk, not to speculate on the markets, should be exempt from some new rules. But a key regulator reportedly said today that Wall Street is trying to get in on the exclusions as well, which could exempt a big chunk of the derivatives market from going through a central clearinghouse.

Corker said today that the debate over those exclusions was the key issue dividing Democrats and Republicans on regulation of derivatives.

Miller, for his part, explained why he thought the House bill did not include stronger derivatives regulation:

It's hard to go home to your districts and say, "I really think major swap participants should have to buy and sell derivatives on an exchange, not over the counter.' I haven't tried saying that to an audience in my district, but I'm sure if I did I would I would not see heads nodding ... I would just see very puzzled looks. So the only people who really understood it were against it. ... It was an issue that folks back home just were not going to have their minds around, unlike consumer protection.

On tomorrow's podcast, we'll have more from Alex's conversation with Miller, as well as his interview with Republican John Campbell, who voted against the House bill.

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