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Barney Frank Subprime Legislation

Regulation Series: $50 Trillion Loophole In Derivatives Reform Bills [Edit or Delete]
I stand by my basic premise that Barney Frank, like other members of Congress does not understand finance. He lacks the skill set to write a bill that by definition must be technically intensive if it is to create the architecture for sound regulation of all U.S. financial markets. Still, he has a better understanding than most. We should all be encouraged that he, along with agriculture committee chairman Peterson, is insisting that the Obama administration legislation to create better reporting and transparency on derivatives be excluded.

Sure, foreign currency contracts, even at so large a number represent a relatively small portion of derivative contracts -- less than ten per cent. And there are those who point out that foreign currency derivatives have not been a problem area during the financial crisis. Of course, neither were any of the derivatives that became problems when subprime mortgage values collapsed until, of course... they became problems. A couple of years earlier, one could have argued that we exclude credit default swaps, such as those that took down AIG, because they had a trouble-free history. To argue for exclusion of the foreign currency contracts based on a largely trouble-free history is pure nonsense. Indeed, those who argue most vehemently for the exclusion are the same people I would watch carefully if an exclusion is permitted.

Fortunately there are a couple of members of Congress who believe there should be no loopholes. Surely we know by now that any loopholes or, more generally, financial transactions that are beyond the net of regulation are exactly where those aiming to game the system will go. It is only comprehensive regulation that can best protect us from future crises. Moreover, as I've consistently stated, transparency alone is not enough to protect financial institutions from themselves and everyone from collateral damage. There must also be standards that allow free markets to function without being smothered, but ensure institutions do not take risks that threaten the entire global system.

I remain a skeptic as to whether sound, comprehensive, sensible new regulation will be passed by both houses and signed by our president. Nonetheless, the effort to close a loophole is a welcome development in a Congress where debate has generally weakened rather than strengthened legislative proposals. Let us hope that we see more of this.

Link to Murder of Lehman Brothers at Amazon

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Author: "The Murder of Lehman, An Insider's Look at the Global Meltdown"

Article Source: ArticlesBase.com - Regulation Series: $50 Trillion Loophole In Derivatives Reform Bills

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