One of the principal causes of the Great Recession was derivatives, which are extremely useful in the daylight but extremely dangerous in the dark. Because there has been no sunshine or transparency in this market, no one realized what a disaster AIG was, costing the taxpayers billions and billions of dollars. We need that information, if only to protect the taxpayers.
A recent example is that nobody knows who will take the loss if the Greek government defaults on its debt. Many of the bondholders have bought credit default "insurance" called CDSs to protect them from loss. But, who sold that "insurance"? They will take the loss, but who are they? Is your bank one of them?
The Dodd-Frank Financial Regulation bill that passed last year would go a long way to controlling this risk. It delegated the detailed rule-writing to the Commodity Futures Trading Commission (CFTC), with those rules to be published yesterday. We knew the new rules would be delayed because the Senate Minority Leader, Mitch McConnell, is adamantly opposed to any regulation that is not perfect and respectful. He said "anything we can do to slow down, deter, or impede" would be "good for the country."
He is wrong!
It is estimated that 3,000 lobbyists, at a cost of $1 billion have been hired to fight regulation. Because of this obstructionism, nobody expected the rules to be released yesterday (which would have decreased uncertainty for business, after all). However, we've learned the rules will not be delayed past year-end. I am confident the rules will be imperfect, but rule-making is always a work-in-progress. Transparency now is more important than writing rules that will only be perfect for one single point in time.
A little sunshine . . . life is good!
The CFTC cavalry is coming to rescue transparency. . .
