The most infamous offshoot of the derivative market, the Credit Default Swap (CDS), is continuing to operate in an unregulated manner. This despite the various collapses that this $60 Trillion unregulated market has caused, and the resulting government bailouts that have forced all of us to become financially responsible for lumbering economic giants such as AIG – a company which was deemed too big for the government to allow its collapse.
Surely, given the damage caused by this unregulated market, the first order of business for lawmakers should be, and should have been, to put laws into place which would end derivative trading in its current form. In short, we would expect that the current recession would inspire lawmakers to make laws that would prevent another recession of this kind in the future…but they haven’t. They’re now trying, and that’s admirable, but those laws haven’t been passed as of yet. As recently as May 13th, Treasury Secretary Timothy Geithner sent a two-page letter to congressional leaders urging them into action.
As of right now, American taxpayers have given AIG, alone, $180 Billion (mostly because of their CDS involvement). This means that every household in America has given around $1,500 to AIG in the form of tax-sponsored government bailout. This is a significant amount of money to pay for a failed system, especially considering that nothing has been done yet to fix it. If we are intending to protect American consumers, we need to first prevent their having to bail out companies to which they have no relation.
We believe that lawmakers and the administration are doing the right thing here by asking that regulation be put into place to cover the derivative market. We think that the suggested nature of that regulation is a good idea as well. What we would like to know, though, is this: why has this taken so long? As lawmakers fight to make sure people can carry guns into national parks, our nation’s economy is still vulnerable to the CDS scandal. It is about time for Congress to perform triage on our economy and start fixing the most serious problems first.