Posts Tagged ‘Derivatives’
Derivatives are invented securities such as futures contracts, collateralized debt obligations, and credit-default swaps that are related to real assets or events but have no inherent value of their own.
The United States has had as much of Phil Gramm as we can stand. While Americans expect almost everyone to be on somebody’s payroll, we are now at a point where we wonder about two main subjects: “Who was paying Phil Gramm for stupidity?”, and “Where am I going to be working next week?”
Draft legislation that would change how over-the-counter derivatives are regulated might prohibit most trading in the $29 trillion credit-default swap market. Is this needless regulation or a good idea announced too late to stop a disaster? Let’s ask the biggest party givers – AIG. U.S. regulators and politicians are stepping up pressure on banks to use clearinghouses and agree to increased oversight of the OTC markets to improve transparency amid the credit crisis. Bad bets on credit-default swaps led to the U.S. takeover of American International Group Inc. in September.
This is a classic case of too little too late from the U.S. government. For a problem that was a clear and present danger to the United States years ago, the Bush administration took action Friday (November 14, 2008) to strengthen government oversight of derivatives trading and close the loopholes that have allowed these complex products to avoid scrutiny. The agencies signed a memorandum of understanding to close the loopholes in their oversight of the complex products that are at the heart of the recent financial market meltdown.