Self-Regulating Derivatives? No Thanks

Thought-provoking stuff – and great quotes – in a new Satyajit Das piece on the regulation of derivatives:

The industry will argue for self-regulation, which bears the same relationship to regulation that self importance does to importance.

And another on Wall Street’s blood-sucking soullessness with respect to derivatives:

The sheer importance and size of derivative profits means that it will continue to attract the best and the brightest who will continue to play these time honoured games [of making them more opaque and complex].

Warren Buffet once described bankers in the following terms: “Wall Street never voluntarily abandons a highly profitable field. Years ago… a fellow down on Wall Street…was talking about the evils of drugs…he ranted on for 15 or 20 minutes to a small crowd…then…he said: “Do you have any questions?” One bright investment banking type said to him: “yeah, who makes the needles?

Lots more here, all of which is punchy and worth reading.

Comments

[Mill Rat:]

Thanks for sharing the commentary by Satyajit Das. I certainly agree with his sentiments.

Ideally, I would like to see legislation that restricts the sale of Credit Default Swaps to only those entities who actually own a piece of the underlying asset.

Meanwhile, a less-than-ideal approach that has some appeal to me, would be the idea of TAXING the sale of Credit Default Swap protection. Again...It's not an ideal solution, but it could be a complement to other legislation.

Any thoughts?

Bryan

Sep 28 08:48 PM

[Asbytec:]

Derivatives have a way of 'self regulating' profits into a severe redistribution of wealth to the rich. If they and banking bonuses are regulated, and the "best minds" in the banking industry leave for more fertile grounds...I'll carry their bags. Let them go screw up someone else's financial market. Let ours heal...

Seriously, though, I'd like them to stay on and take risks, but it's gotta be done responsibly for the greater good. Make money, make a profit, just don't derail the economy in a self serving process.

While we're at it, let's refocus the insurance companies back into the business of spreading risk between it's customers and away from the banking industry.

Sep 29 11:39 AM