BP: From Oil Spilling to Financial Reform Killing

[kpete]

Source: Mother Jones

BP: From Oil Spilling to Financial Reform Killing

— EPA/ZumaPress.com

The under-fire oil company isn't too busy to be fighting financial regulation in Washington.

— By Andy Kroll

Mon May. 10, 2010 3:00 AM PDT

Oil giant BP may be overwhelmed with the clean-up from the collapse of its Deepwater oil rig in the Gulf of Mexico. But the corporation has still found time to fight tougher financial reforms on Capitol Hill. The corporation is a member of the Coalition for Derivatives End-Users, a collection of companies actively pushing for a loophole in new regulations governing derivatives, the complex and opaque products used to hedge risk and bet on fluctuations in the financial markets. Derivatives, experts say, exacerbated the 2008 financial crisis, and lawmakers and the White House have sought to drag that market into the sunlight. The financial reform legislation now in Congress, says President Obama, will “close the loopholes that allowed derivatives deals so large and risky they could threaten our entire economy.”

Not if BP has its way. The corporation, along with the US Chamber of Commerce, Business Roundtable, and other large advocacy groups, wants to ensure that it is exempted from a new provision in derivatives regulation that would increase transparency and make derivatives trading less risky. (BP did not respond to a request for comment.)

First, a primer on the derivatives regulation on the table. The House and Senate bills would mandate that derivatives be traded on an exchange, just as stocks are. This would mean that information on the structure, volume, and pricing of derivatives deals are out in the open. If you’re an airline trying to hedge against the fluctuations in the cost of jet fuel, you’d be able to look at what your competitors paid and get the same kind of deal—not pay an amount devised by a Wall Street broker looking to make a killing. “Transparency brings better pricing and lowers risk for all parties to a derivatives transaction,” says Gary Gensler, chairman of the Commodity Futures Trading Commission.

But what’s got BP upset is a proposal to force derivatives to go through a clearinghouse, a central body that would act as a middleman on each trade, collect data, and help protect failed derivatives deals from leading to massive losses that harm the wider economy. The clearinghouse would do so by requiring companies in a trade to put forward money or other collateral in case those trades went wrong. This, lawmakers and finance experts say, is crucial: Without this middleman ensuring everyone can deliver on their bets, the likely result is another AIG-like meltdown, when a company enters into so many trades that it can’t afford to cover them all if they all fail.

Read more: http://motherjones.com/politics/2010/05/bp-oil-spilling-financial-reform-killing

[Uncle Joe]

1. Kicked and recommended.

Thanks for the thread, kpete.