An explanation of derivatives for the average citizen, and solutions to prevent another derivatives crisisSubmitted by Mark Hanson on Sun, 02/17/2013 - 17:54
Lynn Stout specializes in securities law and is widely recognized as an expert on the role derivatives played in the 2008 financial crisis. She's written a relatively short article on the subject and it's easy to understand, even if you don't have knowledge of financial markets. She explains how a centuries old common law rule called "the rule against difference contracts", successfully kept speculation in check until the Commodity Futures Modernization Act (CFMA) deregulated derivatives in 2000. The repeal of Glass Steagall in 1999 and the implementation of the CFMA were major contributors to the financial crisis. Glass Steagall should be reinstated and CFMA should be repealed.
It's important for average citizens to understand the role derivatives played in the last crisis, and what can be done to prevent another derivatives related crisis. So please take the time to read Stout's article and email it to friends, business associates and elected officials. Here's the link to her article:
Michael Greenberger is a former director of the Commodity Futures Trading Commission (CFTC), which had authority to regulate derivatives until the Clinton administration took its authority away. In this 90 second video, Greenberger illustrates the common law regulation of derivatives (like Credit Default Swaps) that had existed for centuries. If you've read Lynn Stout's article, Greenberger's comments will be an eye opener.
To understand the threat posed by banks with highly leveraged derivative positions, check out this link:
When the Clinton administration stripped the CFTC of its authority to regulate derivatives, Michael Greenberger was working there under director Brooksley Born. Ms. Born warned Clinton that derivatives would cause a financial crisis but his economic advisors "shut her up and shut her down". PBS Frontline did a documentary called "The Warning", which chronicles Born's struggle to regulate derivatives and demonstrates Clinton's role in causing the financial crisis. I highly recommend watching it.
In addition to reinstating Glass Steagall and repealing CFMA, there needs to be criminal prosecution of Wall Street executives. In the following radio interview, former prosecutor William Black lays out compelling evidence for prosecuting Wall Street titans. At least listen to the first few minutes. The second link is Kansas City Fed President Tom Hoenig making a case for reinstating Glass Steagall. We need to need to pressure law enforcement and elected officials to act. If citizens would email these links/post to local attorneys, Sheriffs, prosecutors, State Attorneys General, U.S. Attorneys and elected officials, it would make a difference. Thank you.
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