Here’s a very interesting video of Michael Greenberger, a University of Maryland Law Professor providing testimony to the House Agriculture Committee. He’s obviously nervous and emotional in front of the cool politicians and bankers. Guess who’s right?
I agree with Mr. Greenberger 100% and would take the derivatives ban a lot further than just “naked” Credit Default Swaps (CDS).
Notice how the banker defends derivatives as providing liquidity. Bull. The only liquidity they provide is in the form of massive fees to him and his fellow bankers. Their comeback is that companies use them to hedge against possible default of the companies they are doing business with. I would say that you shouldn’t be doing business with companies you can’t trust, and you should perform due diligence before you do business with them in the first place. Think of the distortions in the economy that would remove. AND, while I don’t know the ratio (can’t know because no one’s keeping track), I would BET that the number of CDS that are used to speculate far outweigh those even with semi-legitimate reasons. There’s just no need for them whatsoever.
Michael Greenberger - House Agriculture Committee on Derivatives Legislation: