WASHINGTON — A measure pushed by Sen. Blanche Lincoln, D-Ark., to rein in trading in risky derivatives remained in limbo as a House-Senate conference committee meeting limped into its 12th hour late Thursday evening.
The committee of House and Senate negotiators has met for the past two weeks in an effort to reconcile legislation, passed by each chamber, that is designed to regulate Wall Street and prevent a repeat of the chaos that put markets on the brink of ruin in 2008.
Almost every Republican opposed Lincoln’s measure during debate in the Senate, arguing it would push trading overseas. In the conference committee, Lincoln’s main opponents were House Democrats, specifically the New Democrats, a group of House members who bill themselves as “pro-growth,” and New York Democrats, who represent the state where the bulk of derivatives trading takes place.
As chairman of the Senate Agriculture Committee, Lincoln has jurisdiction over the regulation of derivatives, which are financial deals based on the future changes in value of an underlying asset. The deals, which are made between parties, rather than on an exchange, can be used by companies to hedge on changes in the price of commodities, such as gas or wheat, or fluctuations in interest rates, currency values or stock indexes.
Financial speculators that make bets on these changes got into the market over the past decade, leading to the near-demise of at least one financial giant, insurer American International Group.
Lincoln’s language would require the trades to be made on an open exchange and would require trading activity to go through a central clearinghouse that would require participants to post collateral.
In the midst of a tough reelection battle, Lincoln also pushed language that would require banks to spin out their derivatives operations into separate units that would require, in the case of several Wall Street banks that dominate the market, hundreds of millions of dollars to provide a financial backstop for the newly created derivatives units.
In midafternoon, Rep. Barney Frank, D-Mass., and chairman of the House Financial Services Committee, announced that the legislation was near the finish line.
Debate and votes had been taken on a range of items, including measures that would create a consumer financial protection agency and create a federal board designed to identify company failures that would put the entire financial system at risk.
Next up was debate on two of the most contentious measures. One would limit banks’ involvement in private equity and hedge-fund activities. The other was Lincoln’s measure.
“The cartoons are over and we’re about to get into the double feature,” Frank announced.
But action stalled over the next several hours. The House members sent the Senate members offers on other aspects of the bill that hadn’t been finalized. Counteroffers were relayed back, and the House served up counter-counteroffers. Members left the hearing room to cast votes in each chamber as the hours dragged by.
Meanwhile, Lincoln conferred with her staff and with members of the New Democrats. Their support is seen as important to ensuring passage of a final bill in the House.
Gary Gensler, chairman of the Commodities Futures Trading Commission, weighed in, looking over legislative text heavily marked up in an inky scrawl.
Several times, Lincoln left the hearing room to meet with various House members.
“We’re talking,” said Rep. Carolyn Maloney, a New York Democrat. Asked if Lincoln had accepted any of the more than 100 changes to the legislation requested by House Democrats, Maloney responded: “I’ve got great respect for Blanche Lambert Lincoln.”
Rep. Gregory Meeks, another New York Democrat, also declined to elaborate on the talks, saying, “We’re working on it.”
A Lincoln spokesman said she could not comment on the record on the status of the negotiations.
As the talks continued, in the hallway and in private rooms, members, banking lobbyists and reporters milled in the crowded, stuffy hearing room.
Sen. Judd Gregg, a New Hampshire Republican, called out for a break.
A late-night debate on the complicated derivatives measure “invites a bill that would have massive unintended consequences,” he said.
“The implications really need to be simmered a little to understand it,” he said, imploring his colleagues to call it a night.
Frank’s counterpart in the Senate, Democrat Chris Dodd of Connecticut, responded that he had to try.
“The alternative is we spend all weekend here,” he said.
Rep. Collin Peterson of Minnesota, chairman of the House Agriculture Committee, has voiced support for Lincoln’s stance on derivatives. The hour was getting late.
“At some point, we’re going to have to cut a deal,” he said.
Front Section, Pages 9 on 06/25/2010