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The future of derivatives trading

Dick Taffe — Mon, 12 Jul 2010 17:19:54 +0000

As the Senate is poised this week to vote on the House-passed compromise bill reforming the financial regulatory system, Law Professor Tamar Frankel, an authority on securities law and author of “Trust and Honesty: America’s Business Culture at a Crossroad,” speculates about the future of derivatives trading once the reform act is enacted. More important than regulating the trading of derivatives, the instruments that helped bring down the financial system in 2008, Frankel feels that citizens should turn away from the “medicine men” (and women) who created the risky bets.

“Unless the geniuses who created the enormously risky ‘risk reducers’ and those who sold them take part of what they sell, and never again bet against what they have created and sold, we will continue to have the enlightened age of a sophisticated financial system – unemployment, enormous national debt, and the death of the middle class that used to be America’s backbone.”

Contact Tamar Frankely, 617-353-3773, tfrankel@bu.edu

Goldman executives questioned

Dick Taffe — Thu, 01 Jul 2010 21:05:43 +0000

The Congressionally appointed Financial Crisis Inquiry Commission exploring the 2008 crash questioned executives from Goldman Sachs, the world’s most profitable bank, about how much it makes trading derivatives — those complex financial bets that helped bring down the economy. Goldman Chief Financial Officer David Viniar said they had no way of determining its derivatives data separately from trading in cash securities. But Mark Williams, a former Federal Reserve bank examiner who teaches finance in the School of Management and is author of “Uncontrolled Risk” about the fall of Lehman Brothers, says he doesn’t buy it.

“For Goldman’s CFO to go before the Financial Crisis Inquiry Commission and claim he doesn’t know what Goldman makes in derivatives trading is the equivalent of a major league pitcher not knowing his ERA. Such a claim is shocking given how lucrative and central derivatives trading is to Goldman’s core business model.”

Contact Mark Williams, 617-358-2789, williams@bu.edu

Financial regulatory reform showdown

Dick Taffe — Mon, 21 Jun 2010 17:37:05 +0000

House and Senate conferees hope to wrap up this week the final version of financial regulatory reform legislation to send to President Obama, with chairmen Barney Frank and Chris Dodd delicately trying to compromises without losing votes for the overall package. What do about the trading of derivatives – the complex financial packages which helped sink the economy – remains up in the air. Law Professor Cornelius Hurley, director of the Morin Center for Banking and Financial Law and a former counsel to the Fed Board of Governors, says the proposal currently in the Senate version but objected to by both the House negotiators and the White House, wouldn’t be the best for taxpayers fearing another bailout but would be better than nothing.

“If derivatives trading is such a socially useful and profitable activity ($23 billion in revenue among the five banks that dominate the market) why can’t it exist outside of bank holding companies? The answer to the question is that it could exist in a different, nonbank setting, but, without the backing of the taxpayers, the activity would have to shed its casino-like features.”

Contact Cornelius Hurley, 617-353-5427, ckhurley@bu.edu

Derivatives amendment showdown

Dick Taffe — Tue, 15 Jun 2010 22:56:36 +0000

Enemies on all sides are coming down on Arkansas Democratic U.S. Senator Blanche Lincoln’s amendment to the regulatory reform bill that would rid banks of their lucrative derivatives business which played such a huge rule in the 2008 financial crash. Law Professor Cornelius Hurley, director of the Morin Center for Banking and Financial Law and a former counsel to the Fed Board of Governors, feels that the only problem with the amendment is that it doesn’t go far enough to drive “toxic” derivatives out of the bank-holding company temple entirely.

“By lodging this casino activity in bank holding company affiliates she runs the risk of the Fed doing in the next crisis exactly what it has done in this one, namely waiving the rigid rules that are supposed to separate banks from their holding company affiliates.”

Contact Cornelius Hurley, 617-353-5427, ckhurley@bu.edu

Obama pushes for derivatives reform

Dick Taffe — Wed, 14 Apr 2010 20:28:51 +0000

President Obama says he wants more regulatory control over the trading of derivatives, the financial products that helped crash the economy, and says the Democrats’ efforts to re-regulate Wall Street will not lead to another taxpayer bailout. Former Federal Reserve Bank examiner Mark Williams, who teaches finance at the BU School of Management and is the author of “Uncontrolled Risk” about the fall of Lehman Brothers, says trading derivatives on an open market would actually strengthen the economy.

“The stakes are high for Wall Street versus Main Street. Keeping derivatives off-exchange means higher trading margins for a handful of Wall Street’s banks but comes at a cost to market participants and overall market stability.”

Contact Mark Williams, 617-358-2789, williams@bu.edu

Crimping derivatives speculation

Dick Taffe — Tue, 28 Jul 2009 19:00:31 +0000

The $450 trillion over-the-counter derivatives market, which added greatly to the economic crash, will be under scrutiny as Congress considers how to curb speculation in credit default swaps. School of Law Professor Tamar Frankel, an authority on securities law, says regulating CDSs would help.

“Credit default swaps are chisels with which our brokers, dealers and investment bankers have separated the building blocks of the financial assets system, with the blessing of past regulators.”

Contact Tamar Frankel, 617-353-3773, tfrankel@bu.edu

Battle over derivatives regulation

Dick Taffe — Mon, 01 Jun 2009 13:33:12 +0000

Trading in complex derivatives, financial instruments like credit default swaps, in large part sparked the current economic crisis. Now the debate has shifted to how to regulate derivatives and where to trade them. School of Law Professor Charles Whitehead, a securities law expert and long-time Citigroup counsel, can offer some guidance as to where the battle between Wall Street and Washington is headed.

Contact Charles Whitehead, 617-2212, ckw@bu.edu

Administration pushes for derivatives oversight

Dick Taffe — Fri, 15 May 2009 16:41:10 +0000

School of Law Professor Tamar Frankel, an authority on securities law, welcomes the Obama administration’s push for more regulatory oversight for the shadowy market of derivatives and can discuss why it’s important.

“The administration’s new rules for derivatives are welcome. The fact that the people who believed in the market self-limitation are at the helm is salutary. They know the benefits and the weaknesses of market self-regulation.”

Contact Tamar Frankel, 617-353-3773, tfrankel@bu.edu