I'll wait for the movie

Gretchen Morgenson thinks that at 3,000 pages, the financial reform bills awaiting reconciliation still don't do enough to prevent future obscure financial products that lead ultimately to meltdowns.

Another part of the Senate bill that keeps derivatives markets opaque resulted from a tiny change in the proposal’s original language.

Initially, the Senate bill’s discussions of derivatives platforms defined them as “trading” facilities, a term of art from the Commodity Futures Modernization Act of 2000. In that law, a trading facility refers to a system in which multiple participants place bids and offers and in which price transparency exists both before and after a trade is made. Such a definition usually excludes making deals over the telephone because negotiating on the phone may not provide access to as many different prices as an exchange does.

But the word “trading” was eventually struck from the final Senate bill’s definition of derivatives platforms. That change would allow dealers to make derivatives deals over the phone, hardly a victory for transparency. Dealers love trading by phone because it makes it harder for customers and investors to see prices and comparison-shop, which, of course, bolsters dealer profits.

Because the House bill never specifically took on the issue of “trading” facilities, it is unlikely that the reconciliation of the two proposals will bring back this important distinction — leaving derivatives trading more opaque than it should be.

Finally, lawmakers who are charged with consolidating the two bills are talking about eliminating language that would bar derivatives facilities from receiving taxpayer bailouts if they get into trouble. That means a federal rescue of an imperiled derivatives trading facility could occur. (Again, think A.I.G.)

Enjoy your stay at the casino.