We’re pleased to see the Obama Administration has asked for new powers to regulate the trading of derivatives — those “financial instruments” by means of which, in the good old days, big banks shuttled bundles of debt back and forth, creating the illusion of economic health until it all went to shit and the U.S. economy collapsed under their weight.
Treasury wants Congress to allow it to track and review these transactions so it can tell when they’re going to blow America’s gasket again and stop them if necessary.
In one sense it’s a timely announcement: the once mighty AIG, which was sunk by its reckless use of derivatives known as credit default swaps, said today it may need up to five years to recover from the dicey investments that left it a basket case.
In another sense it’s long overdue. People have been complaining about these bundles for a while. One of our most popular cover stories, James Lieber’s “What Cooked the World’s Economy?” traced the growth of derivatives, explained their major role in our downfall, and warned that without regulation (and a few subpoenas, which our AG Andrew Cuomo may be on the verge of dealing), it doesn’t matter how much bailout money we throw at the problem.