http://finance.yahoo.com/news/Democrats-Reject-Warren-cnbc-2916475766.html?x=0&sec=topStories&pos=1&asset=&ccode=On Monday April 26, 2010, 2:55 pm EDT
Democrats in the Senate aren't buying what Warren Buffett's Berkshire Hathaway is selling.
The Wall Street Journal reports (subscription required) late this morning that Democrats have agreed to "kill a provision from their derivatives bill pushed by Berkshire Hathaway that would have allowed the company to avoid a significant financial hit." CNBC's John Harwood has confirmed that development with his sources, although John notes the finreg debate still has a ways to go in the Senate, and then in House-Senate negotiations.
The government wants to require companies to set aside collateral to cover potential losses from derivatives contracts. A front page piece (free content) in the printed edition of the Journal earlier this morning said Berkshire and Nebraska Senator Ben Nelson have been pushing to "largely exempt existing derivatives contracts" from the collateral rules. The Journal says Berkshire's argument is "it shouldn't be made to redo existing contracts and that it is already healthy enough to cover its obligations."
But even if the White House and Treasury aren't worried about Berkshire's financial health (and they're not saying one way or the other,) they presumably don't want an exemption provision that would keep the government from requiring more collateral from any number of companies that aren't as careful.
Berkshire has a multi-billion dollar derivatives portfolio, including sizable bets that global stock markets won't be substantially lower 15 to 20 years from the time the contracts were written. In exchange for the "insurance" it is writing against a long-term stock collapse, Berkshire collects "premium" payments up front, which it can use for investments.
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http://finance.yahoo.com/news/Democrats-Reject-Warren-cnbc-2916475766.html?x=0&sec=topStories&pos=1&asset=&ccode=