Senate Beats Back U.S. Competitiveness

The Senate yesterday rejected an amendment sponsored by Sen. Saxby Chamblis (R-GA) and Sen. Richard Shelby (R-AL) to exempt manufacturers and other business end-users from the financial reform bill’s onerous regulations on derivatives. The vote was 39-59.

The restrictions as now contained in the bill go far beyond regulations meant to control hyper-risky speculation. By restricting the legitimate, necessary use of derivatives to manufacturers and others, the legislation will sow more uncertainty in the U.S. business and investment climate. As NAM Vice President Dorothy Coleman said in a statement:

Without this exemption, the cost of managing risk for manufacturers and other companies will increase by millions — and in some cases billions — of dollars, limiting their ability to drive economic growth and job creation.

Manufacturers of all sizes use customized over-the-counter (OTC) derivatives to manage the cost of borrowing or other risks of operating their businesses, including fluctuating currency exchange, interest rates and commodity prices. These risk management tools help businesses keep operations going, invest in new technologies, build new plants and retain and expand workforces – especially in a challenging economy.

The NAM had sent a Key Vote letter to Senators explaining these points. Anti-Wall Street populism IS anti-business populism, and it’s winning the day.

Too much of the news coverage on the vote was framed in terms the proponents wanted — a blow against speculation as conscientious Democrats overcame the special interest pleas of Wall Street lackey Republicans. One report, for example, cast the dispute this way: “The U.S. Senate voted on Wednesday to reject a Republican measure that would have weakened proposed new rules for the unpoliced $615 trillion over-the-counter derivatives market.” So the legislation is “strong,” seeking to control an “unpoliced” market and the amendment sought to “weaken it.” The New York Times headline did the same, “Senate Beats Back Efforts to Ease Regulation Bill.” Thank goodness they beat it back!

Of course, what the Senate “beat back” was an important tool in risk management by major U.S. employers, businesses that do not use derivatives to speculate. Maybe the headline should have read, “Senate Beats Back Efforts to Preserve U.S. Competitiveness.”

P.S. Yay for The Hill, “Manufacturers concerned about derivatives provisions.”

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