The Senate Agriculture Committee was focused on the economy Tuesday. A morning hearing explored the role of financial derivatives in the current financial crisis. Committee Chairman Tom Harkin noted in his opening comments how the situation touches agriculture - pointing out that farm commodity prices have fallen and that saving the financial sector makes it more difficult to fund investments in things like renewable energy. He said it’s now known the financial crisis and the collapse of key financial institutions are largely due to extensive commerce in credit default swaps and similar contracts. And he wants to do something about it.

According to Harkin - swaps are excluded from the authority of the Commodity Futures Trading Commission - and need not be traded on open, transparent exchanges. He says the result is that it’s nearly impossible to know if swaps are traded at fair value or whether the institutions trading them are becoming overly leveraged or dangerously overextended. That’s why he says regulations are needed that protect Americans from collateral damage when the financial sector makes a blunder. He says those regulations must be reasonable and allow financial markets to function effectively and efficiently to move capital and credit where they are needed.

In his mind - Harkin says there’s no question a stronger system of regulation and oversight for over-the-counter swaps and derivatives is needed. He says he has a hard time seeing how to put the financial sector and the economy back on a sound footing without it. So, the Ag Chair has announced plans to introduce legislation that would regulate swaps and other financial derivatives that are traded with virtually no regulation or transparency.