So it took just nine years for some regulators to realise that regulating derivatives might not be such a bad idea after all.
The instruments–which contributed to the fall of AIG and a host of other troubles on Wall Street–were left in the wild for the sake of “financial creativity.” While it seems that many watchdogs still don’t quite grasp how derivatives work, there is a consensus that, well, something, anything, has to be done.
Bloomberg reports that CFTC Chairman Gary Gensler (Goldman alumnus, by the way) said there was little support in Congress to enact regulatory changes in 2000, when a law was passed exempting most derivatives from regulation.
“We should have banged the table harder and pushed harder” for regulation then, said Gensler, who worked at the Treasury Department during the Clinton administration.
“All of us in this room put money into AIG — we’re all taxpayers — and $173 billion went into a very ineffectively regulated insurance company,” Gensler said. “It had no effective federal regulation. If that’s not exhibit A on why we have to cover this marketplace, I don’t know what is.”
Ok. So now that they’ve decided that some action is needed, the next issue is who and how this will be enacted. The ongoing turf battle between the SEC and the CFTC to regulate derivatives might slow up things. It seems unlikely that sensible regulation will emerge from this turf battle. Most likely we’ll just get window dressing that does nothing to prevent the next crisis.
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