Thursday, March 26, 2009
Self-Regulation of Derivatives Industry - The Sequel
When the financiers volunteered in 1999 to self-regulate their derivatives trading, that worked out well, didn't it?
Not so much.
Similarly, the International Swaps and Derivatives Association (ISDA) is currently putting the finishing touches on a new framework for trading and clearing North American corporate credit default swaps.
But above and beyond the fact that industry self-regulation is largely what got us into this financial crisis, under the new framework, "legacy corporate CDS in North America will not fall under the new standards." In other words, the derivatives industry will not deal in any fashion with existing American CDS . . . you know, those little things which caused Bear Stearns, WaMu, Lehman and AIG to fail, and which are necessitating bzillions of dollars in taxpayer bailouts for Citigroup, Bank of America, etc.
Should we trust the industry insiders or nobel economists like Myron Scholes, who says that existing over-the-counter CDS should be "blown up" and closed out?
2 comments:
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Since these derivatives total $516 Trillion, I think exposing them to public scrutiny would destroy the global economy. They're setting to deal with them behind closed doors I expect...
ReplyDeletehttp://www.marketwatch.com/news/story/derivatives-new-ticking-time-bomb/story.aspx?guid=%7bB9E54A5D-4796-4D0D-AC9E-D9124B59D436%7d&print=true&dist=printTop
Treasury Secretary Geithner is calling for new record-keeping requirements for what he calls "non-standard" derivatives. Part of the issue with the recordation of derivatives is that technology (e-mail, text message and so on) has made the formation of legally-binding contracts, such as derivatives, very cheap and easy. Efforts to promote better documenation on derivatives will provoke massive new campaigns to capture, archive and comprehend electronic financial records. See Details --Ben
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