Thursday, January 29, 2009
A damn good idea whose time has come.
The entire world financial structure is currently at risk because of what may or may not be $28 Trillion in credit default swaps. The scary part is that many of those involved in the CDS' have no direct interest in the event that would trigger a default. Finally someone in Congress is proposing a bill that requires you to have a horse in the race if you want to gamble at that casino.
House of Representatives Agriculture Committee Chairman Collin Peterson of Minnesota circulated an updated draft bill yesterday that would ban credit-default swap trading unless investors owned the underlying bonds. The draft, distributed by e-mail from the committee, would also force U.S. trades in the $684 trillion over-the-counter derivatives markets to be processed by a clearinghouse. Hearings on the draft will be held next week.And all the gamblers and bookmakers in the Wall St casino are furious at this attempt to bring reality to their fun.
U.S. regulators and politicians are stepping up pressure on banks to use clearinghouses and agree to increased oversight of the markets to improve transparency amid a credit crisis that began in 2007. Bad bets on credit-default swaps led to the collapse and government rescue of American International Group Inc. in September.
The proposal “would radically shrink” the market, said Scott MacDonald, head of research at Aladdin Capital Management in Stamford, Connecticut, which oversees $16.5 billion in assets. “While it’s important that there’s a drive to return to some degree of plain-vanilla in financial products, this would be considerable overkill.”Pure piffle.
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