>>>In other words, we’ve had regulation, not deregulation.<<<
I really wish I knew how to post those Captain Obvious pictures. He’s really needed!
“Another common claim, that credit-default swaps and other derivatives left unregulated by the Commodity Futures Modernization Act of 2000 were a cause of the financial crisis, doesn’t stand up to scrutiny, either.”
That statement is utter rubbish, the author doesn’t know what the hell he is writing about. Credit Default Swaps were a huge part of the problem.
Due to the lack of regulation you could purchase unlimited swaps on deals that you weren’t even a party to.
It’s as if you could buy multiple life insurance policies on other people, without their consent, giving you a direct financial interest in their demise.
Credit default swaps and related derivatives were driving the subprime lending market by the end of the bubble. Derivatives were where the real money was being made and the tail was wagging the dog. The market had become a casino and no one had a long term time horizon.
Trillions of dollars of derivatives were issued against underlying loans, and since the real interest was in selling derivatives there was little to no interest in the quality of the underlying loans. Subprime loans were simply the raw material needed to get the ball rolling, and if the loans were doomed from the start that was of little concern to those involved.
Yves Smith’s excellent book ECONned describes what was going on in detail. Among the details in Ms. Smith’s book is the fact that the International Swaps and Derivatives Association was responsible for writing parts of the Commodity Futures Modernization Act, the very law that was supposed to regulate them.
If it was in effect, BoA could not have owned all the derivatives they are now pushing to the government guaranteed part of their business.