Subtitled "Hedging, Gambling, or Bankrupting the Economy? The Economic Role Of, and the Law Pertaining To, Financial Derivatives Seminar," financial derivatives, including options and futures contracts, are a multi-trillion dollar economic market, recently far surpassing in value the traditional and better known equity and debt markets. These financial contracts, in their most benign form, are designed to allow market participants to hedge financial exposure in their businesses and/or in their other financial obligations. The most common financial derivatives are stock options or future contracts traded on organized and highly regulated financial exchanges. Over the last two decades, however, the Nation’s largest banks and hedge funds, for example, have designed ever growing number derivatives that are complex and interconnected and that are not traded on formal and traditional exchanges, but, instead, they are exchanged by computerized trading engines. These latter derivative transactions, which garner huge profits for these banks and funds, are referred to as “over the counter” derivatives and, by Congressional action, have been almost completely deregulated. Control of these markets is left almost exclusively to private contractual commitments. However, the lack of governmental regulation has led to a series of economic mishaps, e.g., the failure of the Long Term Capital Management hedge fund and of Enron, that have almost caused widespread systemic damage to the Nation’s economy. These potential economic dangers have sparked an on-going policy and academic debate whether, and the extent to which, these markets should be regulated. Legal issues surrounding these transactions are a major preoccupation of the financial community and the lawyers who serve large financial institutions. Similarly, Congress and other financial policy makers are in need of expertise in this little understood area. Whether considering private practice or employment within the financial policy making structure, students taking this course, which is rarely taught in American law schools, will be greatly advantaged by an understanding of the critical area of the economy and financial markets. Papers written for this seminar may not be used to satisfy the Advanced Writing Requirement.
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