Sunday, November 6, 2011

Fixing Wall Street: Abolish Credit Default Swaps - Seeking Alpha

A Financial Transaction Tax is a good start, but...--SS

"The financial transaction tax has become a useful symbol of the need to rein in the banks. Its enactment would mark an important turning point -- it would show that the power of the banks can be broken. And if the US government keeps opposing it, the EU should enact it unilaterally -- every global bank does business in Europe.

But such a tax would be only a small first step. Banks would still invent exotic instruments and trade them; they'd just have to pay a small tax.

It's time to simply abolish credit default swaps and similar exotic, impenetrable, essentially unregulated securities. They add nothing to economic efficiency, they line bankers' pockets, and they add massively to global financial risks. Swaps were only invented in the 1990s. The world got along beautifully -- much better in fact -- without them.

Before swaps, investors were perfectly capable of evaluating risks -- and there was less systemic risk to evaluate."

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