Greenberger, Sen. Cantwell Call for Tough Derivatives Regulation
Professor Michael Greenberger, JD, joined Sen. Maria Cantwell (D-WA), Sen. Blanche Lincoln (D-AR), and other experts and business leaders for a press conference this week on Capitol Hill to urge lawmakers to enact sweeping financial regulatory reform legislation.
The esteemed coalition, which also included AirTran Airways CEO Robert Fornaro and Air Transport Association President James May, took aim at derivatives, the arcane financial instruments traded on opaque markets that, if exploited by investors, can amount to nothing more than a bet.
"I think it's now beyond dispute that the [over-the-counter] derivatives market was a direct cause of the financial meltdown," said Greenberger. "We just didn't have people who failed to pay mortgages, we had three times the number of people who were betting that those mortgages would be paid."
Senator Lincoln's bill is designed to stop a crisis rooted in abusive derivatives trading from happening again. Her bill, which passed the Senate Agriculture Committee on April 21, would create 100 percent transparency in derivatives markets, among other important financial regulatory reforms.
"Senator Lincoln has put forth a tough proposal that represents a stare-down of Wall Street interests who want to protect their highly profitable and highly risky trading practices," said Senator Cantwell.
Senator Cantwell warned that loopholes in the U.S. House-passed financial regulation bill could exempt up to 60 percent of the derivatives market from exchange trading and central clearing requirements. Absent such requirements, banks and other large financial institutions that deal in derivatives do not have to hold adequate capital reserves to back their guarantees. American International Group (AIG) needed a $180 billion taxpayer bailout to stay afloat because of its massive exposure to derivatives.
"The American taxpayer has become the lender of last resort for this casino operation," Greenberger said.
Professor Greenberger is a former director of the Division of Trading and Markets at the U.S. Commodity Futures Trading Commission. He has testified before Congressional committees numerous times on dysfunctions in financial markets and issues related to financial regulation. More information about his testimony and other media appearances can be found at www.michaelgreenberger.com.