And if you don't find this really odd, please drop me a line because I am just shocked by this entire op-ed. Although the whole article is really, well just unbelievable in my view, let me zero in on a few things:
- Where on earth were all the regulators when a market of instruments - yes, Credit Default Swaps (CDSs) - could be developed to the size that it exceeds the gross domestic product - that is the value of goods and services - of the entire totality of every single solitary country in the world? Did you catch that part? The CDS market is bigger that the value of the entire output of the whole world.
- And if that doesn't disturb you, this market is not even regulated. Even countries have regulation - it's called "governments" because without them there would be anarchy. Didn't the people issuing and trading these things think that an unregulated situation would result in "anarchy" in the CDS market that would come back to bite them too?
- And if that doesn't disturb you, the great AIG that was too big to fail, only - yes only - has 0.8% of these lovely instruments. Only 0.8% that got the whole world into such a crisis. Where are the other 99.2%? We have had every type of man-made disaster; I am really beyond thinking what else we can go through.
- And if none of the above disturbs you, brace yourself for this one. There is no ban on CDSs - new or old. So, for those of us who study environmental pollution, normally the first thing to do is to contain the problem, you know - stop the inflow. Right now, there is no such thing.
Let me summarize where we are:
- Global agreement on a set of principles. Excellent
- Global agreement on need for some kind of reform - not sure what. Great start.
- Agreement on a series of summits thanks largely to the efforts of Prime Minister Gordon Brown, President Sarkozy and President Barroso. President Bush agreed. Excellent.
- Offer by the UN Secretary General Ban Ki-moon to host reform talks. Excellent
- Ongoing hearings by Congress on Financial Regulation Reform. Excellent.
- Appointment by United Nations General Assembly President Miguel d'Escoto Brockmann of A Panel to examine Global Finance Reform. Panel to be Chaired By Professor Joseph Stiglitz (who I suggested have a leadership role in an earlier post). Excellent. (See article here)
- Agreement by the EU to press for comprehensive reforms. Excellent. (See article here)
Without belittling in any way the need for comprehensive change, does anyone not think that the CDS market needs urgent attention?
As in yesterday.
It is not rocket science to 1) give a regulatory body or bodies jurisdiction over the CDS market and 2) devise with some basic rules. A market larger than the combined GDP of the whole world? Please, this seems very straightforward to me.
My vote is for quick and moderate ACTIONS. Let's not stifle innovation, but innovation must be responsible. And let's not go on witch hunts: people created CDSs, people traded CDSs, people presided over a market in which they were allowed to thrive - so this is no one person's fault. And the CDSs are just one small part of the comprehensive reform needed.
We have unprecedented global agreement for change. Can we deal with one very serious problem that all nations must have a vested interest in solving as priority? And maybe, just maybe, we can head off further crisis while we can.