Taylor Lincoln - Wall Street Wants Congress To Roll Back Financial Derivatives Regulations
May 24, 2012 Revisiting the lessons from deregulating derivatives is particularly important right now because Congress seems to have forgotten them. A report we just issued provides a road map of how derivatives wrecked the economy in 2008 and could do so again if Wall Street gets its way.
Nine bills that would roll back the derivatives reforms created in the wake of the financial crisis are moving in Congress. These proposals, most of which have already passed in committee, have been put forth in the name of furthering the competitiveness of U.S. companies and creating jobs for Main Street. These are quite brazen claims, since deregulating derivatives arguably did more to harm economic competitiveness and job creation than anything Congress has done for a very long time.
Here is the history, in brief: At the end of the Clinton administration, financial derivatives were relatively new and sat in a regulatory netherworld. In practice, they were not regulated. But they bore all the hallmarks of traditional futures, which by law must be traded on regulated exchanges.
Federal Reserve Chairman Alan Greenspan and successive Treasury Secretaries Robert Rubin and Lawrence Summers (a trio Time magazine dubbed The Committee to Save the World) argued that financial derivatives investors were too “sophisticated” to require oversight. Regulating derivatives would “cause the worst financial crisis since World War II,” Summers claimed.
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