New regulation for credit default swaps

Chairman of the House Agriculture Committee Collin C. Peterson (D-Minn.) thinks that credit default swaps (CDS) played an important part in the current economic crisis.

"[Few] people know the significant role they have played in the financial and credit crisis that has threatened the stability of our economy," said Peterson during his committee's hearing on reviewing the role of credit derivatives in the U.S. economy.

"The sudden collapse and gradual fallout of the insurance giant AIG and the difficulties experienced by other financial firms in recent months have served to demonstrate that the CDS market is extremely opaque and that market positions, as a result, are nearly impossible to value during times of stress."

To confront these concerns over lack of transparency, attempts have been made to find regulatory solutions for CDS markets. Last week the Federal Reserve System, the Securities Exchange Committee, the Commodity Futures Trading Commission (CFTC), and the Treasury Department signed a memorandum of understanding that would establish a clearing house for CDS which would be under the signers cooperative oversight.

"Financial institutions need to make changes in their risk management practices for [over the counter] derivatives by improving internal incentives and controls and by ensuring that traditional credit-risk management disciplines are in place for complex products, regardless of whether they take the form of CDS or of securities," said Patrick M. Parkinson, Deputy Director of the Division of Research and Statistics Board of Governors of the Federal Reserve System.

"The Federal Reserve is working cooperatively with other domestic and international authorities to strengthen the infrastructure through which CDS trades are cleared and settled and to address weaknesses that have been identified in the risk-management practices of major market participants."

Anada Radhakrishnan, Director of the Division of Clearing and Intermediary Oversight of the CFTC discussed the expertise the commission would bring.

"The CFTC has developed extensive institutional knowledge and regulatory expertise regarding derivatives clearing...we at the CFTC will continue to work collaboratively and cooperatively with our colleagues...to bring transparency and financial integrity to the CDS market through clearing and infrastructure improvements."

McCain campaign could face millions in fines

The Democratic National Committee (DNC) General Counsel Joe Sandler hosted a teleconference today to discuss his request that the Federal Election Commission (FEC) put off a vote on whether to release Sen. John McCain from the federal matching funds program. The DNC filed an administrative complaint regarding what they call McCain’s unilateral decision to withdraw from the program without filing a request form with the FEC. If the Arizona senator were found to to be in violation of the law, Sandler says the McCain campaign could face a fine of millions of dollars.

According to federal campaign finance law, candidates may participate in a program in which the federal government matches donations from private campaign contributors. In return the candidates agree to limit their spending according to a statutory formula. However, they can opt out of this program, releasing them from the spending limit, as both John McCain and Barack Obama have done.

A representative of the DNC said that the Committee is asking the FEC to change its agenda tomorrow, instead pursuing a full investigation into McCain’s withdrawal. Sandler said that the appropriate course of action, should it be found that McCain violated the law, is to make the information public in time for the election in addition to administering appropriate financial penalties. He went on to say that if McCain is found to be in violation of the law, he could face penalties amounting to tens of millions of dollars the senator has spent over the $57 million limit since his unilateral withdrawal.

Sandler said he feels that because this is a high-profile matter, the FEC can conduct a swift investigation and issue a ruling before November.

Obama Campaign holds conference call about FEC complaint against Clinton group

The Obama Campaign held a conference call today to talk about their FEC complaint against a pro-Clinton group called the ALP, or American Leadership Project. The campaign claims that they are a “so-called” 527 political group that is run by Jason Kinney, who happens to be the son of a Hillary Clinton Indiana state co-chair.

Yesterday, the ALP began running an attack ad that is apparently misleading against Obama. Barack Obama’s Campaign Chief Counsel Bob Bauer and state Representative Matt Pierce were on the call to discuss the complaint.

Bauer stated “now the law needs to be enforced to send the ultimate message” while Pierce commented, “clearly this didn’t make sense to me” going on to say “who are these people, I really don’t know.”

Notes on DNC Conference call on FEC complaint about John McCain

Intro by Karen Finney

Howard Dean, DNC Chairman
Joe Sandler, DNC General Counsel

FEC complaint to be filed tomorrow

Dean:
Tomorrow DNC will be filing complaint with FEC asking for investigation into McCain campaign. He cannot unilaterally withdraw from spending commitment.

He can't get out of matching funds agreement after using promise as collateral on loan. He has "material gain" from his fund.

When Dean got out of the program, he had an FEC vote to get out, and also he spent money to get on ballots, while McCain has gotten free ballot access as part of program.

Joe Sandler:
In letter this week, FEC commissioner said that McCain can't back out after he's written a letter to FEC saying he wanted to be in the program, and the FEC has taken a vote on McCain's eligibility. That was not the case with Dean and with Kerry, who pulled out before being certified by the FEC as being eligible. McCain is in the same situation as Gephardt was in 2003, and then the FEC said he couldn't get out without FEC consent.

And even if the FEC had a quorum and could vote, McCain can't get out after having used his participation in the program as collateral for a loan.

So McCain still subject to limitations, including spending limit. Based on how much spending he reported as of end of January, he has likely already violated, or is about to violate, that spending limit.

Dean:
So three violations: 1. Material benefit in free ballot access. 2. Material benefit in using as loan collateral. 3. (likely) spending limit violation.
McCain is not a reformer; he passes changes to benefit himself.

Question:
What kind of sanctions are you looking for? How can the commission act without a quorum?

Sandler:
They can begin to process the complaint without quorum. We hope there are no sanctions imposed, because we hope McCain will comply with the law. If he doesn't, potentially civil and criminal penalties.

Question:
Have you approached watchdog groups to ask them to join in complaint?

Dean:
Don't think so.

Sandler:
Those groups are non-partisan, so they wouldn't join a party in a complaint. They might call on McCain to follow the rules, though.

Question:
Dean's opinion on 527 groups active on Clinton and Obama sides?

Dean:
I haven't followed that.

Question:
Any chance of reaching out to RNC to together speak out against 527s?

Dean:
"I'm going to worry about the 527s at another time."
On McCain, "this is a major violation." This is "so Washington."

Question:
Said you want him to obey the law, but how can he go back in time and never apply for federal funding? So he can't spend another penny until he gets the nomination in September?

Dean:
I don't understand how someone with McCain's reputation can do this kind of thing. He says one thing and does another. "We want John McCain to obey the law with his own name on it."