Report: Warren Buffett loses bid to weaken Senate bill on derivatives regulation

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Warren Buffett’s attempt to water down a Senate bill on the regulation of derivatives contracts has failed, the Wall Street Journal is reporting.

Buffett sought to amend a provision in the bill that would require companies to put up collateral against any existing derivatives contracts they hold. The goal of the provision is to force companies to provide a capital buffer for themselves in case of heavy losses on derivatives -- to lessen the risk of the kind of financial spiral that nearly destroyed insurance giant American International Group in 2008.

Derivatives, which are contracts that reflect expectations for the price moves of underlying securities or commodities, can be used by companies and investors to speculate on or hedge against market moves. Buffett’s Berkshire Hathaway Inc. extensively uses derivatives in its financial dealings, despite the billionaire’s now-famous 2003 warning about derivatives being “financial weapons of mass destruction.”

As the Journal noted, Berkshire has been able to use its “strong financial position to post little collateral against its big derivatives portfolio, freeing up capital for investing elsewhere.” The Senate bill’s provision thus would cost Berkshire money by forcing it to put up more collateral against its derivatives positions.

Buffett had argued that it was unfair for Congress to force retroactive changes on derivatives deals already outstanding.


But the Journal’s front-page story Monday detailing Berkshire’s heavy lobbying on the bill may have been exactly the kind of publicity that Buffett -- and his Senate friends, including Nebraska Sen. Ben Nelson -- didn’t need. Berkshire is based in Omaha.

-- Tom Petruno