Streetwise Professor

February 12, 2009

Congress Shall Pass No Law

Filed under: Derivatives,Economics,Exchanges,Politics — The Professor @ 11:37 pm

There’s an old joke that the Founding Fathers should have ended the Bill of Rights after the first five words of the First Amendment.   The lunacy surrounding derivatives regulation suggests that there is more than a little wisdom in that witticism.  

The House Ag Committee first mooted a proposal that would have limited the trading of credit default swaps to hedgers (only those long bonds could buy protection; only those short bonds could sell it).  That proposal met with snorts of derision and bellows of outrage from many quarters (including hereabouts, where I voiced both), so committee chair Peterson soon backtracked on that.  Then it was reported that the bill would permit the CFTC to summarily stop trading in CDS products.  As I was quoted in Bloomberg, that was an improvement, but it was still horrible.  So, channeling Maxwell Smart, Rep. Peterson said “Check that.  Would you believe that what I really meant was that CFTC could stop trading in CDS by those without positions in the underlying security only on companies that were subject to an SEC short sale ban.”  

Given that the SEC short sale ban was arguably one of the most idiotic public policy moves of recent memory (and the competition is very stiff in that category, sports fans), House Ag’s new position appears to be that the CFTC has the authority to imitate the moronic moves of a thoroughly discredited agency.  Great.

The bill’s future is extremely uncertain.  You might think that’s good news, but the reason for its tenuousness just gives rise to other concerns.  Barney Frank is moving to get control of the bill shifted to his committee.  Yes, the Barney Frank who should not be allowed within several galaxies of any responsibility for regulation of anything related to the financial system.  The Barney Frank who, if he had a scintilla of shame (I know, I know), would have retired to a hermitage in the aftermath of Freddie and Fannie.  One can only imagine the mischief and mayhem he can create given control over derivatives market regulation.

Congress shall pass no law.  Sounds good to me.  But it will.  And, as the old saying goes, no man’s life, liberty, or property are safe while the Legislature is in session.  That mordant remark was never truer than today.

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  1. In Texas, they used to say “hide your women, children and booze – the legislature is in town.”

    Incidentally, based on that, the Texas legislative session is intentionally short. Less time to do any damage.

    Comment by elmer — February 13, 2009 @ 10:54 pm

  2. When I was listening to Obama talk about the bill on live TV the other day, saying the same things Bush was saying back in Oct-Nov (with a noticeably better grasp on the English language), using the same scare tactics and showing the same type of general lack of understanding, the same type of “this is what my advisers told me to say” way of talking but with that cool and confident demeanor he always has, it was then that I concluded that this new administration is going to run the country further into the ground.

    I would never vote for Ron Paul as my president, I disagree with many of his political views, but for goodness sake, people need to start listening to him and Peter Schiff. They’re dead on about the economy and this crisis.

    Comment by Bob from Canada — February 14, 2009 @ 11:33 pm

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