In Crisis, Banks Dig In for Fight Against Rules

[Hannah Bell]

By GRETCHEN MORGENSON and DON VAN NATTA Jr.
Published: May 31, 2009

As the financial crisis entered one of its darkest phases in October, a handful of the nation’s largest banks (including JPMorgan Chase, Goldman Sachs, Citigroup and Bank of America) began holding daily telephone sessions...Atop the agenda: ...how to counter an expected attempt to rein in credit-default swaps and other derivatives...

Today...battle over derivatives has been joined...One camp, which includes legislative leaders, is pushing for trading on an open exchange — much like stocks — where value and structure are visible and easily determined. Another camp, led by the banks, prefers that some of the products be traded in privately managed clearinghouses, with less disclosure.

A proposal unveiled recently by Treasury Secretary Timothy F. Geithner won plaudits for trying to make derivatives trading less freewheeling and more accountable — a plan that hinges in part on using clearinghouses for the trades. Critics in both the financial world and Congress say relying on clearinghouses would be problematic. They also say Mr. Geithner’s plan contains a major loophole, because little disclosure would be required for more complicated derivatives, like the type of customized, credit-default swaps that helped bring down A.I.G....

http://www.nytimes.com/2009/06/01/business/01lobby.html

[lapfog_1]

1. I think I have a better idea...

make them illegal and punishable by 20 years in the Federal Pen.

Assholes.

[nc4bo]

2. Now that would be change going in the right direction. nt

[Selatius]

3. From the NYT article itself

...

Critics in both the financial world and Congress say relying on clearinghouses would be problematic. They also say Mr. Geithner’s plan contains a major loophole, because little disclosure would be required for more complicated derivatives, like the type of customized, credit-default swaps that helped bring down A.I.G. A.I.G. sold insurance related to mortgage securities, essentially making a big bet that those mortgages would not default.

Mr. Rosen and other bank lobbyists have pushed on Capitol Hill to keep so-called customized swaps from being traded more openly. These are contracts written for the specific needs of a customer, whose one-of-a-kind nature makes them very hard to value or trade. Mr. Rosen has also argued that dealers should be able to trade through venues closely affiliated with banks rather than through more independent platforms like exchanges.

Mr. Rosen’s confidential memo, dated Feb. 10 and obtained by The New York Times, recommended that the biggest participants in the derivatives market should continue to be overseen by the Federal Reserve Board. Critics say the Fed has been an overly friendly regulator, which is why big banks favor it.

...