Agri-business

I wondered why Blanche Lincoln, as chairman of the Senate Agriculture Committee, had such a large voice in the financial reform "debate." The Times' Edward Wyatt and Eric Lichtblau helpfully explain.

With so much money at stake, it is not surprising that more than 1,500 lobbyists, executives, bankers and others have made their way to the Senate committee that on Wednesday will take up legislation to rein in derivatives, the complex securities at the heart of the financial crisis, the billion-dollar bank bailouts and the fraud case filed last week against Goldman Sachs.

The forum for all this attention is not the usual banking and financial services committees, but rather the Senate Agriculture Committee, a group more accustomed to dealing with farm subsidies and national forest boundaries than with the more obscure corners of Wall Street.

A main weapon being wielded to fight the battle, of course, is money. Agriculture Committee members have received $22.8 million in this election cycle from people and organizations affiliated with financial, insurance and real estate companies — two and a half times what they received from agricultural donors, according to the Center for Responsive Politics.

Much of that lobbying has centered on Senator Blanche Lincoln, the Arkansas Democrat who is the committee’s chairwoman and who last week introduced the bill that would prevent banks from trading derivatives directly.

The daughter of a sixth-generation rice farmer, she has found herself navigating a dangerous channel between Wall Street firms, which raised $60,000 at two fund-raisers for her re-election campaign so far this year, and her constituents, many of whom want a crackdown on the speculation that led to the financial crisis.

Other committee members, on both sides of the aisle, also have reaped donations from people and companies in the derivatives business, including Senator Saxby Chambliss of Georgia, who is the committee’s ranking Republican member; Kent Conrad, the North Dakota Democrat; and Charles E. Grassley, the Iowa Republican.

The committee will be the main arena for the derivatives fight for reasons dating to an era when farming was more important to the nation’s economy than finance. In their simplest form, derivatives can provide financial protection on the value of an investment or commodity. For example, by putting up a relatively small amount of money, a farmer could buy a derivative known as a forward or futures contract that would guarantee a set price for crops and thereby guard against ruinous price swings between planting and harvest.

But the most esoteric derivatives — which also are the most profitable for banks to create and trade — have little economic purpose other than to let investors place financial bets, critics say.

And make no mistake, there is a lot of money -- and votes -- riding on this for Senator Lincoln and her colleagues on the committee. And the usual bedfellows are on opposite sides of the issue.

Now, these obscure and largely unregulated securities — more than $600 trillion of which are tucked into investors’ portfolios, according to the Treasury Department — are at the center of the fight over financial reform led by the Obama administration.

“The best that we can do for the American people is to put in place rules that will prevent firms from taking this risk again, make sure we protect the taxpayer, bring derivatives out of the dark — that’s what we can do, ” said Timothy F. Geithner, the Treasury secretary.

The lobbying is not just coming from Wall Street. Manufacturers, airlines and other industries, which use derivatives to control their business and foreign currency costs, worry that an important means of protecting their assets could be curtailed by Mrs. Lincoln’s bill.

“I think a lot of members of Congress are just getting up to speed on how these markets work,” said Paul Cicio, who is president of the Industrial Energy Consumers of America, which represents an array of industries like fertilizers and chemicals. He said he worried that the lobbying prowess and financial resources of Wall Street firms, even when operating in the unusual environs of the agriculture committee, had the potential to outmuscle their opponents, which want greater regulation.

“Of course I’m going to be concerned, because they are big-money companies,” and derivatives make up substantial portions of their profit margins, he said. “But this is incredibly important, and it’s important to get it right.”