Financial Times: Re-regulation won't curb Wall Street's worst excesses

[marmar]

Re-regulation won't curb worst excesses
By John Plender

Published: May 26 2009 16:26 | Last updated: May 26 2009 16:26


Bankers are, by common consent, dangerous. If the risk of a re-run of the current financial debacle is to be avoided, it is vital that those who play with the most dangerous capital market instruments should be thoroughly disarmed by watertight regulation. Yet so persuasive is Wall Street in the policy dialogue that we are now witnessing re-regulation with a banker-friendly face.

Consider, first, the over-the-counter (OTC) derivatives markets, the opaque multi-trillion-dollar Sargasso Sea where so much systemic risk resides. This is a huge source of profit to the biggest banks, and an equally huge source of loss to the taxpayer when toxic derivatives blow a hole in balance sheets, as at Lehman Brothers and AIG.

The obvious way to curb this dangerous activity is by forcing such business onto formal, fully transparent exchanges. This would be tough for the banks, because exchange-traded derivatives are standardised, commodity-type products that generate a fraction of the returns available in the OTC market – to which taxpayers could very fairly respond, so what?

Yet the recent reform proposals from Tim Geithner, US Treasury
secretary, surprised even bankers by opting for a much less draconian set of measures involving no more than a clearing house, a not very demanding measure of transparency, and a scale of capital charges that merely tries to steer business towards regulated exchanges.

Clearly, some very effective lobbying has been going on. For, as Christopher Whalen, a banking analyst, argues, in spite of the appearance of reform, the proposals leave the OTC market in the hands of large derivatives dealer banks. Terms like innovation, productivity and competitiveness are being heard again in Congress in connection with arguments that OTC derivatives manage risk, rather than create it. The same language can be heard in London, which handles a greater volume of derivatives business than Wall Street. ..........(more)

The complete piece is at: http://www.ft.com/cms/s/0/8bacf162-4a08-11de-8e7e-00144feabdc0.html?nclick_check=1

[PM Martin]

1. Unless the big banks (monopolies) are broken up.

there will be no reform.

To think, our banks wanted the same types of de-regulation too. If they had that, Canada would be in the same place America is in right now. Not that our current condition is pretty, but America's is much worse.

[Wednesdays]

2. K&R

:kick: