This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Cramer's Action Alerts PLUS - See his portfolio and get alerts BEFORE every trade. Learn more NOW!

Credit Default Swaps: Bad Enough to Ban?

There seems little doubt tighter regulation of esoteric financial derivatives that have played a major role in the financial crisis is on the way, but one influential lawmaker is weighing a more drastic measure: banning them outright.

Sen. Tom Harkin (D., Iowa), chairman of the Senate Agriculture Committee, which regulates derivatives and so has a claim to authority over credit default swaps, has repeatedly questioned whether the $60 trillion industry should be outlawed. The unregulated derivatives, which insure lenders against borrowers' default on debt, have been blamed for the financial meltdown of companies like American International Group (AIG - Get Report), which required a multi-billion government bailout last month.

"They've been touted as reducing risk, but as we have seen, it has actually increased the risk, the systemic risk, of the whole society," Harkin said during an Oct. 14 hearing exploring the need for greater regulation of the derivatives.

It is unclear how much support an outright ban of CDS would have in Congress and Harkin has not yet introduced legislation on the subject. Still, the debate has exposed the enormity of the gulf between a Democratic party that looks to have a significant mandate to regulate business for the first time in decades and a Wall Street community that is used to being left alone by Washington.

"People on trading desks don't really typically know how to interact with people who are making laws, because most of the stuff we do is unregulated," says a senior trader at a large bank, who declined to be identified.

1 of 6

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
AIG $56.02 0.74%
C $53.30 -0.49%
GS $188.21 -0.98%
JPM $61.56 -0.71%
MS $35.86 0.96%

Markets

DOW 17,945.66 -190.06 -1.05%
S&P 500 2,084.31 -16.73 -0.80%
NASDAQ 4,956.2690 -26.54 -0.53%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs