Stephen Gandel (a Senior Editor at Fortune) is the latest jackass to call for outlawing credit default swaps. His rationale for taking this headline-friendly yet intellectually flawed view is that there are problems with the CDS market. He brilliantly suggests, “The fact that it’s now JPMorgan getting stung by the CDS market would serve as a fitting bookend for this chapter in financial ‘innovation,’ and a good example of why it should be closed,” which is to say he doesnt really have a rationale and is looking to score points with readers by using a flashy headline.
Applying Gandel’s logic, anything that doesnt quite work perfectly or that is the least bit flawed ought to be banned…. Well, I don’t know about you, but to my mind that description (somewhat flawed) applies to most players in and most aspects of the financial markets, and certainly to the Dodd-Frank regulatory regime. If anything, we ought to require lawmakers and pundits to actually understand the subject matter they seek to regulate and/or write about, respectively. Then, perhaps, we might have a regulatory regime that makes sense and a society that understands that there is a need for both simple and complex financial products.
Perhaps we should have banned equities after the crash of ’29…
The lords of Wall Street succeeded years ago in getting Congress to step back from regulating credit default swaps. They went off and piled risk upon boundless risk in pursuit of unsustainable gains. Now that they have demonstrated an inability to self-manage their addiction to internecine risk, it is an appropriate time to take their toys away. If they refuse regulation of swaps then an outright ban should work.
Please don’t take my toys away!