Why is the bill to regulate financial firms going through the Senate Agriculture Committee?

Answers to your questions about the news.
April 22 2010 6:34 PM

Farmers for Banking Reform

Why is the bill to regulate financial firms going through the Senate Agriculture Committee?

The Senate Committee on Agriculture approved the Wall Street Transparency and Accountability Act on Wednesday. Should the bill become law, it will prohibit the Federal Reserve from bailing out financial firms that trade derivatives—a practice widely considered to have aggravated the economic crisis. Why is a committee best known for dealing with farm subsidies and forest boundaries regulating financial markets?

Because traders used to gamble with corn. A derivative contract, very briefly, is a bet on what's going to happen in the future. These instruments are now associated with interest rates, or with a company's creditworthiness, but in the 19th century they were more often attached to the future prices of agricultural commodities, like rice, wheat, cotton, or corn. Farmers were suspicious: They worried that speculators were depressing the value of their goods and lobbied their representatives to step in. State governments responded first; Illinois, for example, made futures contracts illegal in 1867. Then, starting in the 1880s, Congress wrote one bill after another aimed at regulating "to arrive" contracts (as derivatives were then called). Over a span of about 40 years, federal lawmakers introduced 164 such measures, but the more robust attempts to control derivatives did not become law. The 1890 Butterworth Anti-Option Bill, which tried to ban futures trading, never came to a vote. And the 1892 Hatch Anti-Option Bill, which tried to do the same, passed both houses but failed on technicalities during reconciliation. Since crops were at issue, Senate bills tended to go through the agriculture committee. The committee on banking wasn't created until 1913.

The first major piece of derivative-regulating legislation to come out of Congress was the Future Trading Act of 1921. Tweaked a year later and renamed the Grain Futures Act (after the original was struck down by the Supreme Court), it discouraged speculation that might exacerbate price fluctuations. The Commodity Exchange Act of 1936 expanded regulation to cover not only grain futures exchanges, but also cotton and rice contracts. It wasn't until 1974, with the Commodity Futures Trading Commission Act, that Congress expanded the definition of a commodity beyond agricultural products. The term would now cover "all other goods and articles, except onions … and all services, rights, and interests in which contracts for future delivery are presently or in the future dealt in." The law made it explicitly OK to trade financial instruments, or pretty much anything else—except onions—and at the same time brought all this nonsense under the jurisdiction of a newly created federal commission. (No one was permitted to sell onion futures under any circumstances: a ban dating back to 1958, still in place to this day. That's because onions are highly perishable and thus arguably more vulnerable to price manipulation—a slight increase in supply can lead to slashed prices.)

The Committee on Agriculture was formed in 1825, when farming was more vital to the economy than finance. The Department of Agriculture was created a bit later on—by Abraham Lincoln in 1862. Through the 19th century, the department would distribute trunkfuls of seeds to congressmen, who would then mail seed packets to constituents—grass seeds to some, flowers or vegetables to others. This tradition went by the wayside in the early 20th century, as Americans moved off farms and into cities and suburbs.

Got a question about today's news? Ask the Explainer.

Explainer thanks Donald A. Ritchie of the Senate Historical Office.

Like Slate and the Explainer on Facebook. Follow us on Twitter.



Talking White

Black people’s disdain for “proper English” and academic achievement is a myth.

Alabama’s Insane New Abortion Law Gives Fetuses Lawyers and Puts Teenage Girls on Trial

Tattoo Parlors Have Become a Great Investment

A Jaw-Dropping Political Ad Aimed at Young Women, Apparently

The XX Factor
Oct. 1 2014 4:05 PM Today in GOP Outreach to Women: You Broads Like Wedding Dresses, Right?

Big Problems With the Secret Service Were Reported Last Year. Nobody Cared.


Operation Backbone

How White Boy Rick, a legendary Detroit cocaine dealer, helped the FBI uncover brazen police corruption.

Hong Kong’s Protesters Are Ridiculously Polite. That’s What Scares Beijing So Much.

This Gargantuan Wind Farm in Wyoming Would Be the Hoover Dam of the 21st Century

Oct. 1 2014 8:34 AM This Gargantuan Wind Farm in Wyoming Would Be the Hoover Dam of the 21st Century To undertake a massively ambitious energy project, you don’t need the government anymore.
  News & Politics
Oct. 2 2014 11:01 AM It Wasn’t a Secret A 2013 inspector general report detailed all of the Secret Service’s problems. Nobody cared.
Oct. 2 2014 12:58 PM Why Can’t States Do More to Protect Patients From Surprise Medical Bills? It’s complicated.
Lexicon Valley
Oct. 2 2014 1:05 PM What's Wrong With "America's Ugliest Accent"
  Double X
The XX Factor
Oct. 2 2014 12:37 PM St. Louis Study Confirms That IUDs Are the Key to Lowering Teen Pregnancy Rates
  Slate Plus
Behind the Scenes
Oct. 1 2014 3:24 PM Revelry (and Business) at Mohonk Photos and highlights from Slate’s annual retreat.
Brow Beat
Oct. 2 2014 1:29 PM Want to Know What Makes David Fincher Great? Focus on What He Doesn’t Do.
Future Tense
Oct. 2 2014 1:22 PM If Someone Secretly Controlled What You Say, Would You Notice? What cyranoid experiments reveal about how people act.  
  Health & Science
Oct. 2 2014 12:53 PM The Panic Virus How public health officials are keeping Americans calm about the Ebola threat.
Sports Nut
Oct. 1 2014 5:19 PM Bunt-a-Palooza! How bad was the Kansas City Royals’ bunt-all-the-time strategy in the American League wild-card game?