Von Aldo

Wrongheaded Financial Reform

It is clear to me that members of Congress don’t understand financial markets, much less fiscal and economic matters. New York Mayor Bloomberg quite rightly points out that some in Washington would like to force banks to spin off their lucrative derivatives trading, which would only damage Wall Street and the City of New York in particular. It would send derivative trading to more accommodating foreign shores. Bloomberg said that forcing banks to give up derivate trading “would force swaps into less regulated entities, increasing systemic risk by pushing transaction into the very ‘shadow market’ which played such a large role in the recent crisis.”

As a New York Post editorial says today, “Few would dispute, of course, that the market for credit derivatives -- complex bets about whether a company will default on its loans that were at the heart of the financial crisis -- needs reforming. But both the House and Senate bills do that already -- by creating transparent marketplaces for the trades and requiring firms to put cash down before they bet.”

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