Many thanks to Tim Fernholz, of The American Prospect, and Taylor Griffin, of Hamilton Place Strategies, for helping me out via IM yesterday afternoon to explain to me what on earth is going on with Chris Dodd and the financial regulatory reform bill. The Reuters headline says that talks have failed, and that Dodd is going solo, but in fact it’s not quite as bleak as that.

The important context to bear in mind here is that Dodd, in Griffin’s words, “is staring down the barrel of an April recess and knows he needs to get something moving”. Or, as Simon Johnson puts it, “a week or two lost now can derail completely opportunity for reform along any dimension”. It’s all well and good for Dodd to negotiate with Corker in good faith, but if the talks are dragging out far too long, it makes sense for Dodd to put some deadlines on negotiations with the Republicans. And the way that he’s doing that is by taking a bill to the full committee, and allowing just one week for it to sit there in markup.

Kevin Drum has a couple of good questions about credit default swaps, and the final link in his post literally made me laugh out loud, so I’ll do my best to answer him.

If the bond issuer does default, and there are a hundred speculators who own CDS protection on one of its bond, you’ve gone from, say, a $10 million event to a $1 billion event. Basically, when things go bad — and eventually they always do — widespread CDS protection can cause things to spiral far more out of control than they would otherwise.