This was a vote on an amendment offered by Rep. Stupak (D-MI) that would have given the Securities and Exchange Commission and other federal regulators the authority to prohibit certain “swap” transactions they believed posed a risk to the financial market place. A “swap”is a financial instrument that can be used to lock in the future price for a commodity or as a form of financial insurance. Participating in one can sometimes place an entity in a financially risky position. The amendment was offered to H.R. 4173, a major financial reform bill which implemented the most significant changes in the regulation of the financial industry since The Great Depression.
Stupak said that the amendment provides “additional assurances that the swaps market will be policed and prevents speculative financial companies from evading regulations or otherwise ignoring the law. Under this amendment . . . (C)ertain swaps (which) . . . are pure speculative bets that a company will fail . . . should be banned. As we learned in 2008, credit default swaps and other swap transactions pose a systemic risk to our economy and accelerated the economic collapse.”
Stupak noted: “This amendment also narrows the definition of determining which companies are and are not bona fide (swap) users. Commercial companies that use commodities and securities to lock in prices and hedge the risk of their products . . . did not create the current financial crisis. H.R. 4173 reflects this reality, but its exception for (certain) . . . swaps . . . is written so broadly that financial speculators and private pools of capital can be treated as bona fide hedgers.”
Rep. Peterson (D-MN), the chairman of the committee that has jurisdiction over the regulation of swaps, opposed the amendment. He said it reflected “good intentions”, but expressed concern “that if we ban these products, they will simply move overseas and outside of our ability to regulate them. And if they are dangerous products and if they are something that shouldn't be done, I don't know if it makes any sense if we are just going to transfer that over to a foreign country.”
Peterson also objected to the fact that “the amendment limits the applicability of legal certainty of swaps. This amendment asks the question why illegal swaps should be enforceable. The answer is that otherwise you will encourage illegal behavior. If a swap dealer or an end user finds itself in a money-losing swap, it would be easy to engage in some illegal behavior to negate the swap and escape its financial liability.” He also objected to the fact that, based on the language of the amendment, “(T)he standard of illegality is not very high. You wouldn't have to commit fraud to invalidate a swap; you just don't have to follow the regulations.”
The amendment was defeated by a vote of 150-279. One hundred and forty-five Democrats, including a majority of the most progressive Members, and five Republicans voted “aye”. One hundred and sixty-nine Republicans and one hundred and ten Democrats voted “nay”. As a result, language was not added to the major financial reform bill, which gave regulators the authority to prohibit certain swaps they believe pose a risk to the financial market place.