WASHINGTON, DC-Emotions on Capitol Hill are running high over theissue of how to regulate the use of derivatives in financialtransactions–emotions that were hardly blunted by the hours-longtestimony by top executives at Goldman Sachs.

To be sure, Congress, particularly the Democrats, had been seeking toestablish some controls and transparency over these little-understoodinstruments before the US Securities and Exchange Commission chargedGoldman with fraud in its structure of certain collateralized debtobligations. The suit, though–whatever one’s belief in its merits–has clearly heightened tensions and put a spotlight on the issue forthe public. A public, it hardly needs to be said, that is feelingprecious little sympathy for investment bankers these days.

For all of these reasons, the real estate industry is becoming more nervous about what might be handed down in Washington–especially as the CMBS markets continue to show signs of revival. The most strict proposal–put forth by Sen. Blanche Lincoln–may not have the votes to pass. Essentially, Lincoln’s bill would have banks wall off their swaps-trading desks completely.

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