MELISSA BLOCK, host:
From NPR News, this is ALL THINGS CONSIDERED. I'm Melissa Block.
ROBERT SIEGEL, host:
And I'm Robert Siegel. Derivatives played a central role in the economic crisis. Those complicated financial contracts brought down AIG, and many economists believe they nearly brought the economy to a halt.
Well, now one government agency is trying to figure out how to regulate the enormous derivatives market, and the agency is receiving a lot of input from bank lobbyists.
As Chana Joffe-Walt of NPR's Planet Money explains, that input is arriving in two forms: straightforward and sneaky.
CHANA JOFFE-WALT: Let's start with the sneaky because it's so weird. Okay, so here's the setup: The agency in charge of writing new rules to regulate derivatives asked anyone with an opinion on how they should do that to send them letters. They'll post them to the website.
Silla Brush, a reporter with Bloomberg News, has been checking them out from time to time, to see who is writing in. And one morning, he sees a peculiar signature.
Mr. SILLA BRUSH (Reporter, Bloomberg News): The names are usually big banks on Wall Street, some financial institutions that are based around the world. I just hadn't seen Burger King.
JOFFE-WALT: Burger King, and we're not talking company headquarters but a single Burger King franchise in northwest Arkansas. So Silla calls them up and gets the treasurer, Terra Brace.
Ms. TERRA BRACE (Treasurer, L.W. Clark, Inc.): And they were asking us to comment on our letter and why we felt so strongly about it that we had contacted the Commodity Futures Trading Commission.
JOFFE-WALT: Terra told the reporter: I have no idea what you're talking about. You know, he said, the lobbying letter you sent to the CFTC. Quiet. The regulator that has to write new rules about regulating derivatives? No, Terra said, I think you have the wrong - we're a Burger King franchise.
Ms. BRACE: We had no idea what they were talking about. It was far beyond our usual areas of expertise. We were completely baffled.
JOFFE-WALT: The letter, it turned out, was a fake. Silla, the reporter, found six more fake letters. There was a sheriff who supposedly sent in a letter, two lawyers, a mental health counselor and Marilyn Edwards, an Arkansas county judge who, I'm telling you, does not sound like someone you want to cross.
Judge MARILYN EDWARDS: I don't like people signing my signature that doesn't have authorization to do so.
JOFFE-WALT: Right, right.
Judge EDWARDS: Let's just put it this way: I was not happy.
JOFFE-WALT: Why do you think it was your name that they forged?
Judge EDWARDS: Now, honey, I can't tell you why someone would do that.
JOFFE-WALT: Luckily, at this point, I can.
What happened was last summer, one yet unnamed company hired a PR firm to launch a grassroots letter-writing campaign on derivatives reform. The PR firm hired a contractor in Arkansas, who hired a subcontractor in Arkansas. And instead of finding real people who care about derivatives - financial contracts tied to some other asset, presumably that's a challenging thing to find - the subcontractor just went ahead and forged letters from grassrootsy-sounding people.
Now, among the many strategies lobbyists are employing to influence regulators right now, this one is strange, surely unusual. But the whole fiasco in Arkansas does tell us two things about where financial reform is right now.
The first is that the conversation is not in the domain of regular people. And second, it tells us that there's a group of people who care desperately about this issue. The derivatives market is huge, with hundreds of trillions of dollars at stake. Lobbyists are out in force working to influence the CFTC.
Most of them, though, are using a more straightforward tactic: just showing up.
Unidentified Man: ...what follows on from that, the data that supports those ideas is where the challenge is.
Unidentified Woman: Yeah, but that's why I'm trying to get...
JOFFE-WALT: This is a public hearing at the CFTC on derivatives reform.
In this session, there is a big table. Two regulators are sitting at the head with eight people from the banking industry. It's a public hearing, but there seems to be no public in the room. And once you hear what they're talking about, you kind of understand why.
Mr. DAVID TAYLOR (Regulator, CFTC): What turnaround time frame is needed for assignment of a UCI to an entity that seeks one?
JOFFE-WALT: Most of the morning, David Taylor, a CFTC regulator, is asking incredibly technical questions, mostly about how the CFTC can set up an exchange so derivatives can be traded publicly.
And then, at one point in the hearing, he sort of shifts in his seat.
Mr. TAYLOR: There is, before we move further down the question list, there is a question on here that, and I was thinking how to put it: Are there existing candidates for this role? And who are they?
JOFFE-WALT: It's quiet for a full minute after this. This is the first time there will be an open exchange for derivatives, potentially trillions traded on the exchange. Everyone at this table would love to have a role. So eventually a voice pipes up from the end of the table, Brad Barton(ph), with a company called Swift.
Mr. BRAD BARTON (Swift): Yes, we are a candidate. So I vote for myself, but...
JOFFE-WALT: When he finishes, the man to his right, Ron Jordan(ph).
Mr. RON JORDAN: We do think that Avox has some core capabilities here...
JOFFE-WALT: And then, one by one, every other person at the table volunteers his services.
Unidentified Man #2: I'm very grateful to my two colleagues to my left for jumping on this question first.
Unidentified Man #3: So just to throw our hat in the ring...
JOFFE-WALT: The informational hearing for regulators somehow turns into a job interview for banking people, banking people advising regulators about writing new rules who happen to have millions riding on the outcome of those rules.
JOFFE-WALT: Here's the thing, though. You ask both lobbyists and regulators about this conflict of interest, and they will tell you, sure, it's not ideal, but of course it works this way.
Mr. TIM RYAN (Lobbyist): You can't possibly expect people in the government at all levels to understand all this stuff. They just - they're not market participants.
JOFFE-WALT: This is Tim Ryan, CEO of SIFMA, a lobbyist who represents many of the big Wall Street names you know. And he says the CFTC regulators are newly responsible for an enormous market. A lot of them have never bought or sold a derivative in their life. They have a lot to learn.
Mr. RYAN: We have a huge machine working on this, trying to give the regulators the content, the facts, which we know many of them do not have.
JOFFE-WALT: Bart Chilton, a CFTC commissioner, told me industry can be really helpful as he tries to write rules that are smart and make sense. But speaking of writing new rules, that takes time. And here is a typical day for Bart Chilton.
Mr. BART CHILTON (Commissioner, CFTC): It usually starts with lobby meetings and ends with lobby meetings. In the middle, well, we've got lobby meetings.
JOFFE-WALT: How is that fair that they get access to you all day long, that they have your attention all day?
Mr. CHILTON: Well, I mean, look, this is a democracy. People have a right to representation. I think the megabanks are more represented than others. But I certainly will meet with anybody who wants to meet with me.
JOFFE-WALT: The thing is, of course, for the most part, regular people aren't calling up the CFTC for a meeting even though Tim Ryan, the lobbyist, says this is the most important part of the bank reform process, the part where regulators write the actual rules that will govern the system. It is this part of the process, he told me, that you really want to make sure your voice is heard.
Chana Joffe-Walt, NPR News.