Buffett lobbies against clampdown on derivatives
Tuesday 27 April 2010
Warren Buffett, the man who christened credit derivatives "financial weapons of mass destruction", is lobbying against a proposed clampdown on existing derivatives contracts.
His investment company, Berkshire Hathaway, has emerged as a key player on Capitol Hill as the minutiae of the Wall Street reform Bill is being finalised, and Mr Buffett has persuaded a senator from his home state, Nebraska, to go in to battle against provisions that could cost his company billions of dollars.
Last night, Republican senators succeeded in delaying progress on the Bill, voting en bloc against a motion that would have begun a floor debate, but bipartisan negotiations will continue behind the scenes.
Berkshire has a derivatives portfolio of $63bn (£41bn), partly as investments and partly as hedges used by its subsidiary, MidAmerican Energy, one of the largest utilities in the US.
The Bill proposes that derivatives should be traded publicly, instead of privately between companies and banks, and users should be required to put down collateral to cover potential losses. David Sokol, the chairman of MidAmerican and the front-runner to succeed Mr Buffett as head of Berkshire Hathaway, has met senior lawmakers to argue that the rules should not apply to existing contracts, only to new ones.
Ben Nelson, a Nebraska senator, had hoped to include the exemption as the Bill emerged from the committee stage. His spokesman said the measure "should not be so far-reaching that it negatively impacts existing good-faith contracts".
Last night, it appeared that there would be no exemption for existing contracts in the revised Bill, but talks and amendments are likely to further alter the measure, not just as it affects the derivatives market but across its many provisions. The reforms also introduce new ways to stop financial institutions becoming so big they can destabilise the financial system, and to wind them up without taxpayer bailouts if they fail.
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