Senator Chris Dodd (RPCV-Domican Rep.) will bring the Senate’s version of the House Bill to better regulate financial markets to a vote on Monday. This will complement the Wall Street Reform and Consumer Protection Act already passed under the very able, if not remarkable, leadership of Representative Barney Frank. As I have stated in several blogs, this is the “legislative imperative” for this year.

Film director Michael Moore commented in a recent interview that the financial markets are already well on the road to a repeat of the unregulated financial markets collapsing and causing the current recession. I have never agreed with Moore but on this one it appears that he has been reading my blogs, since I have been warning about this for the last half year.

To reiterate, unregulated financial markets, principally trade in derivatives, including securitized debt, produced the largest source of credit in American history. To put this into numbers the latest estimate I have seen puts the derivative market at $600 trillion, yes trillion. The entire US economy for 2009 was $14 trillion. And this market is unregulated. Not only do we not regulate this market, we have no official or unofficial record of how large this market may be or its structure.

We need this new regulation which Rep Frank sums up as making all financial transactions “transparent” and we need it urgently. We know that the derivative market, and especially securitized debt, is rapidly regaining its dominance of the financial markets and once more becoming our principal source of credit. If we do not get this new legislation in place soon, we could be facing the same financial “meltdown” we had in 2008. I say we “could” be facing it since traders in this market did learn a lesson and they will be more cautious in their trades. However, we cannot rest easy until we have the new regulations in place.

The Senate bill has been delayed by concern about the “Consumer Protection” part of the Act since all hands are on board for making trades in derivatives transparent. And the idea of a Consumer Protection part of the Act is agreed to by all. The hang up is should this new agency be independent or housed in one of our present relavant institutions, e.g. the Federal Reserve Bank or the Federal Deposit Insurance Corportion (FDIC).

Let’s hope the Senate quickly passes this bill and we get regulation of derivatives in place as soon as possible, since this train is already leaving the station and we need to run to catch it.