Testifying before a Congressional panel on Wednesday, Treasury Secretary Geithner said that legislation to bring transparency to the unregulated $600 trillion derivatives market — which was blamed for contributing to the financial meltdown that drove the U.S. economy into recession in 2007 — was needed soon to restore confidence in the U.S. financial system.
Geithner urged lawmakers during his testimony to let regulators block companies from customizing derivatives contracts to avoid trading on central clearing houses.
“We … should require that regulators carefully police any attempts by market participants to use spurious customization to avoid central clearing,” Geithner said.
He also argued that “Lack of transparency in OTC derivative markets, combined with insufficient regulatory power to police these markets, left our financial system more vulnerable to fraud and manipulation”.
Let’s hope Geithner will be successful in his attempts to convince Congress to impose more transparency and regulation on the D-markets. Somehow we doubt it. According to MW, “more than 18 months after the crisis began in earnest, Washington still doesn’t seem to be able to pass even the weakest bill bringing order to this dangerous marketplace. Banks, which have spent $334 million in lobbying efforts this year, are complaining that new regulations are too onerous. Investor advocates complain there are too many loopholes.”
