Van Hollen Vows War Over Derivatives

Opponents of financial regulatory reform have hit upon a pretty good strategy. Step one is to oppose financial regulatory reform. Step two is to rake in tons of cash from big banks. Step three is to pretend regulatory reform will lead to endless bailouts. Step four is to pretend that simply letting banks fail is an adequate response to market panic. Step five is that when the next panic comes, you do a bailout.

To win the argument, proponents of reform need to hit on an issue that clearly casts themselves as friends of regular people and their opponents as stooges of Wall Street. The beneficiary of this political dynamic seems to be the derivatives side of the regulatory reform package. When the House dealt with finance, this was one of the areas it was weakest on. But things are looking up in the Senate, House leaders seem committed to stronger language, and Greg Sargent reports that Democrats are eager to go to war on this subject:

In an interview, DCCC chief Chris Van Hollen told me Dems will mount a big push to make this case on a new front — derivatives trading — as they make a broad case that the GOP is the party of big banks. “This is a defining issue that tells people which side you’re on,” Van Hollen said.

Dems are seizing on a report in this morning’s Wall Street Journal saying the biggest banks have been trying to dilute the reform legislation by lobbying against restrictions to the hugely lucrative derivatives trading business. The White House and Dems, resisting this push, are moving to squeeze this type of trading. […]


“This will be a very important issue in this fight,” Van Hollen said. “Derivatives and other exotic financial instruments are part of the story of what got us into this mess. It’s absolutely essential that we have transparency and accounability when it comes to the derivatives market. This is a defining issue.”

The concern I’ve heard about this subject for months from Treasury folks is that derivatives regulation is too obscure (how many people even know what a derivative is) to engage the public in. But it seems that people in the White House and on the Hill believe they can, in fact, make people see why this matters. I hope they’re right.