One of the biggest problems with financial reform is having to discuss issues that most people find painfully boring. For instance, “derivatives.”
But “derivative” is an important word! And the concept is crucially important to both the financial crisis and where reforms need to go. There’s a reason why Warren Buffett said, “Derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.” And why Bill Clinton said he was wrong to avoid regulating derivatives when he had the chance. These financial instruments played a central role in the financial crisis, culminating with the collapse and bailout of AIG.
A third reason is if it were clear that the regulations under question were obviously overkill. But these rules are, as of now, well within the bounds of an appropriate, common-sense regulatory response to the financial crisis. As Wallace Turbeville of Demos, who also testified on the bills, noted, “These bills undercut and second-guess careful work performed by regulators in making rules for the derivatives markets. Congress should not be advancing broad and sweeping statutory exemptions that overturn the judgment of expert regulators and effectively deregulate portions of the derivatives market only a few years after the decision to regulate them for the first time and before the carefully constructed regulatory regime can be evaluated.”