Nov 29 2008
Harkin Introduces Law to Regulate Credit Default Swaps
Pledging to end what he calls “casino capitalism,” Senator Tom Harkin (D-IA) Thursday introduced a bill that would place all derivatives and swaps under the regulation of the Commodity Futures Trading Commission.
Over-the-counter futures contracts, which were deregulated in the 1990s, would have to be traded on a regulated futures exchange.
When asked if he thought that U.S. legislation banning unregulated derivatives might force the business offshore, Harkin said he expects the U.S. to work with other countries to pass similar legislation.
Credit default swaps are a form of insurance purchased on bonds. Basically, they’re contracts, usually between banks, that act as insurance on debt. Under the contract, the seller, for a fee, agrees to make a payment to the buyer if something bad happens to the debt the buyer has insured with the swaps.
Since the market for the swaps is so much larger than the initial loans they were meant to insure, they have tended to magnify every injury the financial markets have suffered.
