In exchange . . .

One of the smarter ideas I've heard for trying to prevent this sort of thing net time around is putting derivatives on exchanges.  Most derivatives are traded over the counter, in part because US bankruptcy law encourages it:  as I understand it, derivative counterparties don't have to get in line with the others, but can seize any collateral they can get their hands on.

Exchange trading enhances transparency, by making it clear what's out there and roughly who owns it.  It also moves the clearing risk to the exchange; while exchanges do fail, they do so much less often than financial firms, and if intervention is needed, they provide a centralized locus for any private or public action.

Apparently the Chicago Mercantile Exchange is looking at setting up a major derivatives exchange.  For those who are convinced that "more regulation", rather than "different regulation" is the answer, strongly encouraging trading on these exchanges would be a good place for the government to start.

Presented by

Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

Google Street View, Transformed Into a Tiny Planet

A 360-degree tour of our world, made entirely from Google's panoramas

Join the Discussion

After you comment, click Post. If you’re not already logged in you will be asked to log in or register.

blog comments powered by Disqus

Video

Google Street View, Transformed Into a Tiny Planet

A 360-degree tour of our world, made entirely from Google's panoramas

Video

The 86-Year-Old Farmer Who Won't Quit

A filmmaker returns to his hometown to profile the patriarch of a family farm

Video

Riding Unicycles in a Cave

"If you fall down and break your leg, there's no way out."

Video

Carrot: A Pitch-Perfect Satire of Tech

"It's not just a vegetable. It's what a vegetable should be."

Video

The Benefits of Living Alone on a Mountain

"You really have to love solitary time by yourself."

More in Business

Just In