Obama Pushing Derivatives Regulation


This is a good idea.

That said, I’m pretty skeptical about regulatory reforms. If you think back to the pre-crisis years, there was already more regulators could have done with the laws already on the books, but they chose not to use that authority. What’s more, the existence of derivatives wasn’t an obscure point, nor was the fact that they were largely unregulated. And it’s not as if key policymakers were ringing the alarm bells and calling for more authority, but then being defeated in legislative battles. In other words, there was a strong presumption in the Clinton administration that became an overwhelming presumption in the Bush administration that financial regulation was boring and over. That was Alan Greenspan’s mentality and it was Ben Bernanke’s mentality and it was the mentality of key officials at Treasury. The view was that markets should be allowed to function, and that regulatory arbitrage was a good thing.

And it’s this mentality, more than any specific rule or lack of rules that was the bigger driver. The real question moving forward relates to whether or not that mentality can be changed, and to how long the change can be made stable. Promulgating new rules about derivatives is a nice step in that direction, but it’s just a start.