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"Warren Buffett famously called derivatives financial weapons of mass destruction. That was before they detonated..."
A "freight train" of regulation "could literally spell the end of U.S.-based derivatives markets," Rep. Scott Garrett (R-N.J.)
(He argues this could destroy jobs and I wonder which jobs? and how many?)
Dodd-Frank generally calls for them to be traded in markets like stock exchanges, where the prices would be plain to see and it would be harder for firms in the business of minting derivatives to extract outsize profits.
In addition, Dodd-Frank calls for steps to make sure the parties to those contracts have the financial wherewithal to make good on their commitments - for example, by putting down collateral. But business groups are arguing that such a requirement, known as "posting margin," could force them to tie up capital they could use more productively.
Another argument against the bill was that companies who legitimately use derivatives as a hedge and not speculation would be punished somehow (The article cites MillerCoors). I did not follow this argument completely as we are only talking about regulating derivatives not eliminating them.
Do you think some of these objections have merit or are they just a standard response by parties that have a stake to lose?
That was an interesting article.
ReplyDeleteI have really enjoyed the discussion on this reform, especially this article which highlights a few of the pros and cons being debated at the moment. I am also finding it hard to follow the Republican's arguments. I feel as though they are being a bit dramatic with statements like regulation "could literally spell the end of U.S.-based derivatives markets," Rep. Scott Garrett (R-N.J.). I think there may absolutely be some fall out from this reform, but we have got to take the good with the bad at the moment. From what I have gathered so far (and apparently Congress for passing it), this bill is going to do enough good to make the potential negative repercussions worth dealing with. I think we've all come to a conclusion that some form of regulation or oversight has got to be put into place.
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