Senate Democrats are moving toward a bill that would rein in Wall Street firms, but they're getting resistance from billionaire investor and Obama supporter Warren Buffett on measures to regulate derivatives, the Wall Street Journal reports ($).
Senate Banking Chairman Chris Dodd, D-Conn., and Senate Agriculture Chairwoman Blanche Lincoln, D-Ark., reached a tentative deal Sunday night that would place tighter controls on derivatives - requiring banks to spin off derivatives investments into separate businesses with their own capital and creating separate exchanges on which derivatives would be traded.
But Berkshire Hathaway, Buffett's multi-billion dollar investment firm, has been pressuring lawmakers to include a provision into the bill that would allow existing derivatives contracts to be exempt from the new rules, a move that would save the company billions, according to the report. Barclay's Capital puts Berkshire's derivatives portfolio at $63 billion.
Sen. Ben Nelson, D-Neb., a member of the Agriculture Committee, introduced the Buffett-backed provision the grandfather in the new regulations. Berkshire Hathaway is based in Nebraska and its employees have contributed $75,550 to Nelson during his career, the report noted. A Nelson spokesman said the Senator's support of the provision simply stems from his belief that new rules shouldn't be applied retroactively.
The White House, which also has enjoyed Buffett's support, is trying to kill Nelson's provision, arguing that it would weaken the government's ability to regulate derivatives - a central element to the president's reform goals. Berkshire argues that Congress doesn't have the authority to rewrite existing contracts.
Under the original legislation, companies would have to post collateral for any derivatives it held. Berkshire also argues that it holds enough cash to cover those investments.
Derivatives are investments based on the future price of assets, like oil or mortgages, that some companies use to hedge against an investment's risk. Many blame risky derivative trading for the country's financial crisis in 2008.
Despite Berkshire's large derivatives portfolio, Buffett has referred to them in the past as "financial weapons of mass destruction."