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Unregulated derivatives contine to benefit bankers
Key Excerpts from Article on Website of New York Times

New York Times, October 18, 2009
Posted: October 29th, 2009

Congress began the work of reforming our troubled financial system last week, and a bill aimed at regulating derivatives passed the House Financial Services Committee on Thursday. Derivatives contracts that theoretically protect buyers from unforeseen financial calamities but more often are used to fuel raw speculation were ... at the heart of the banking crisis. Credit default swaps ... propelled the American International Group off the cliff. Those swaps also linked millions of trading partners, creating a web in which one default threatened to produce a chain of corporate and economic failures worldwide. And derivatives arent going away. So reforming the $42 trillion market for credit swaps is crucial if taxpayers are to be protected from future rescues of institutions deemed not only too big but also too interconnected to fail. The best aspect of the House bill is that it requires many swaps to be traded on exchanges just like stocks, subjecting them for the first time to the light of day. But elsewhere in the bill, ... exceptions to this exchange-trading rule undermine its regulatory power. Big banks dealing in swaps dont want exchange trading, where pricing and the identities of participants would be more publicly transparent. Michael Greenberger, a University of Maryland law professor and an expert in derivatives, criticized the House bill. The plain language of the legislation can only be read as a Christmas tree of decorative gifts to the banking industry, he said. And this is being done when people acknowledge the unregulated O.T.C. derivatives market was a principal reason for the meltdown.

Note: For lots more on the realities of the Wall Street bailout, click here.

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