For all Washington’s criticisms of derivatives, it isn’t taking a firm stand with its new policy recommendations.
The Over-the-Counter Derivatives Markets Act of 2009 was sent to Congress this week. But, as The Project On Government Oversight points out, most of the language is spent divvying up authority between the SEC and the CFTC, not setting limits on the complex financial products themselves by strictly defining them.
That could mean watered-down rules. As POGO notes, leaving it up to the SEC and CFTC would give “industry the opportunity to influence the definition through back channels.” Instead, they recommend that Treasury “put in a formal definition of a standard derivative before allowing the regulators to try and do it.”
That echoes a column from Matthew Goldstein at Reuters, who argues the White House needs to take the lead in defining the much-derided — and debated — $592 trillion industry. “Leaving it to the regulators to decide will allow an opportunity for the industry to get their hooks into this and potentially create a mess,” says Goldstein.
We know Tim Geithner’s busy and lawmakers don’t even know what a derivative is, so how would you define those tricky little things?
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