Financial Regulator Seeks Powers To Curb Excess Speculation

Financial regulator seeks powers to curb excess speculation
By Kevin G. Hall | McClatchy Newspapers

If Congress grants the commission's wishes, big Wall Street players such as Goldman Sachs, Morgan Stanley, JP Morgan Chase and others would be subject to capital requirements, new business-conduct rules and more extensive reporting and recordkeeping requirements.

Firing the opening shot in a likely battle with Wall Street, the federal regulator who's overseeing the trading of oil contracts asked Congress on Thursday for broad powers to regulate the exotic private contracts that are thought to contribute to rising oil prices and the global financial crisis.

Testifying before the Senate Agriculture Committee, Commodity Futures Trading Commission Chairman Gary Gensler told lawmakers that he needs broad authority to bring all derivatives contracts under regulatory supervision. Derivatives involve bets that derive their value based on future prices of some underlying asset, such as oil contracts, interest rates, currency or even bonds and other forms of credit.

The new commission chief also called for an additional set of rules for swaps dealers, big global financial institutions that dominate activity in these markets. These rules would force players on both sides of a transaction in these markets to set aside cash to cover potential losses.

The global financial system nearly collapsed during the last four months of 2008 after the Federal Reserve and the Treasury Department rescued insurance giant American International Group. AIG was rescued because it had issued trillions of dollars in insurance-like private derivatives contracts and had insufficient reserves to cover its losses.

"The current financial crisis has taught us that the derivatives trading activities of a single firm can threaten the entire financial system and that all such firms should be subject to robust federal regulation," Gensler said. Read more.