Financial Derivatives Regulation

Subtitled: "Hedging, Gambling, or Bankrupting the Economy? The Economic Role Of, and the Law Pertaining To, the Six Hundred Trillion Dollar Financial Derivatives Market.” Financial derivatives are a multi-hundred trillion dollar worldwide financial market, far surpassing in value the traditional and better-known stock and bond markets. One kind of derivative, “naked credit default swaps,” was the subject of Michael Lewis’ book “The Big Short” and the movie of the same name. Naked CDS allowed financial investors to fully insure against the defaults on mortgages in 2007-2008 – mortgages that the investor did not own, but received full value of defaulted mortgages by paying about a 1% premium. These “big shorters” collected trillions of dollars on their bets that the mortgage market would fail in 2008. The overwhelming consensus is that the inability of many big financial institutions to pay off naked CDS to the tune of trillions of dollars was the central causation of the 2008 financial crisis and triggered the need for a multi-trillion dollar U.S. taxpayer bailout of the big banks that gave this insurance. Theoretically, the Dodd-Frank financial reform act signed into law in July 2010, designed a regulatory scheme to prevent future derivative calamities of the 2008 sort. The course shows, however, that big U.S. banks created their own new massive loophole to that statute; and that poorly regulated derivatives of the kind that exploded in 2008 are still present today as are mounting defaults on consumer debt on which naked shorts are based. Prominent financial journalists have stated that the same kind of financial market dysfunctions in derivatives present in 2007 and early 2008, are present again today. They warn of a financial calamity akin to the onset of the Great Recession in 2008. Whether considering private practice, working for banks, or employment within the financial policy making Congressional, executive branch or public advocacy structure, students taking this course, which is rarely taught in American law schools, will be greatly advantaged in employment searches by an understanding of this critical area of the economy and financial markets. No prior experience with economics or financial instruments is required. There is no paper in this course. There is a short answer exam.

Key to Codes in Course Descriptions
P: Prerequisite
C: Prerequisite or Concurrent Requirement
R: Recommended Prior or Concurrent Course