Sunday, April 18, 2010

Financial regulation, need therefore Part III

Tim Geithner was on Meet the Press this morning talking up the financial reform bill. Geither kept talking and talking about regulation, without ever saying what the regulations might be. Presumably guv'mint bureaucrats will be given authority to give orders to the banks. That's a lot of power for a bureaucrat.
Geithner did say he favored an exchange for "derivatives" by which he meant credit default swaps.
I suppose an exchange would keep records, from which regulators could figure out how much money the banks had wagered on the swaps. Me, I think financial regulations should outlaw swaps completely. Credit default swaps don't grow the economy, instead they divert money from useful investments into high stakes gambling. Credit default swaps killed AIG , Lehman, Merrill Lynch, and Bear Stearns. These are clearly dangerous gambling games with the power to crush mighty brokerages with a single email.
Geithner stressed that "his" regulations would protect taxpayers from future Wall St bailouts. He didn't say how. The bill has a $50 billion bailout fund built into it, but that's chicken feed. TARP was $750 billion, 15 times as much, and it wasn't enough.
We need to put the fear into Wall St. Every trader making risky bets should fear losing his job, loosing his house, loosing his life savings, loosing his reputation, and going to jail if the bet doesn't pay off.

No comments: