I have to roll my eyes every time someone points out that the proposed OTC derivatives reforms still preempt state anti-gambling laws. This is generally presented as some sort of obviously-ridiculous exemption that proves that Dodd, or Geithner, or whoever, is in the pocket of Wall Street. First, I suspect that, if asked, the majority of people complaining about state anti-gambling laws being preempted for OTC derivatives would say that they think anti-gambling laws are anachronistic holdovers from a more paternalistic era, and should be repealed. Second, state anti-gambling laws are famously (over)broad — for instance, New York Law § 5-401 (Gen. Oblig.) provides:
All wagers, bets or stakes, made to depend upon any race, or upon any gaming by lot or chance, or upon any lot, chance, casualty, or unknown or contingent event whatever, shall be unlawful.Obviously, this could ensnare a whole host of contracts that we consider perfectly legitimate (e.g., insurance). So for this law to stay on the books, we need all sorts of exemptions and carve-outs for legitimate contracts which could nevertheless fall within § 5-401. Once we've decided at the federal level that OTC derivatives are legitimate financial instruments — and like or not, we have decided that — then preempting ridiculous state anti-gambling laws is perfectly appropriate.
The fact that the proposed OTC derivatives reforms preempt state anti-gambling laws is evidence of nothing other than that state anti-gambling laws are silly, overbroad relics.