pittrader1988

America Needs an Independent Clearinghouse for OTC, CDS

Schumer has called for all the regulation to be out of NY, and through the NY Fed. Guess who has them in their back pocket?

We picked Fannie and Freddie because they are classic quasi government agencies that lead to distortions in the marketplace, and blew up. The same would happen if the IBanks ran their own clearing.

By the way, today I have been listening to people go on tv and tell the public that the interbank market is okay. The TARP is spending money, and injecting onto bank balance sheets.

They are still wrong. The counter party risk that existed before the bailout still exists. What if the assets on the banks balance sheets are worth even less than they estimate? Then more capital will need to be injected to prop them up.

The only way to find out what this stuff is worth is to create a competitive marketplace and have bids and offers. If you clear the stuff through a clearing house, you eliminate counterparty risk. This should lead to better pricing, because the sellers and buyers won't need to price in that risk.