The clear and present danger of the derivatives market

“The unregulated multi-trillion dollar derivatives market exceeds global GDP [by an estimated 10x +] and poses a clear danger to the global economy, Chris Whalen, Senior Managing Director at Tangent Capital Partners, and Barry Ritholtz, CEO at Fusion IQ, tell Bloomberg Law’s Lee Pacchia.

“The fix is very simple,” says Ritholtz, “repeal the Commodities Futures Modernization Act and suddenly this becomes like every other financial instrument.”

Whalen notes that the financial industry is reluctant to change the way derivatives are managed because they generate large returns at a time when banks are less profitable than before. “The super normal returns that they earn from derivatives subsidize the rest of the business,” he says.”

Here is a direct link.

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3 Responses to The clear and present danger of the derivatives market

  1. Roberta says:

    I have an idea. Let’s put all our assets into “money in the bank” and wait for the soon-to-come big downturn so we can load up on cheap assets near the bottom.

    Wait…….didn’t they say the banks might go “poof” and dissappear?

  2. William says:

    1. Will the financial system blow up before or after the Commodities Futures Act has been repealed ?
    2. Will the repeal of this Act on its own lead to a blow up of the financial system ?

  3. Charlie says:

    @william: Keep in mind that Barry is talking about repeal of the Commodity Futures MODERNIZATION Act, which essentially allowed the financial kids at big banks to gamble, with the implicit backing of the US Treasury, in totally unregulated financial instruments, derivatives. CFMA is not the Commodity Futures Act.

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