Treasury Secretary Timothy Geithner went to US Rep. Barney Frank's banking committee (also the agriculture committee, which regulates commodity trading) and made this proposal for federal regulation of derivative securities, those packages of mortgage loans and other pooled investments whose mispricing has wrecked the credit markets, financial system and economy, leaving millions jobless. His summary:
"First, we propose to require that all standardized derivative contracts be cleared through well-regulated central counterparties and executed either on regulated exchanges or regulated electronic trade execution systems," instead of the current private system imposed under President Clinton and former Federal Reserve Chairman Alan Greenspan at Wall Street's request.
"Second, through capital requirements and other measures, we propose to encourage substantially greater use of standardized OTC derivatives and thereby to facilitate substantial migration of OTC derivatives onto central clearinghouses and exchanges...
"Third, we propose to require all OTC derivative dealers, and all other major OTC derivative market participants, to be subject to substantial supervision and regulation, including conservative capital requirements; conservative margin requirements; and strong business conduct standards...
"Fourth, we propose steps to make the OTC derivative markets fully transparent. Relevant regulators will have access on a confidential basis to the transactions and open positions of individual market participants. The public will have access to aggregated data on open positions and trading volumes," via the Securities and Exchange Commission and the Commodities Futures Trading Commission, which will also collect an "audit trail" of each transaction.
"Fifth, we propose to provide the SEC and CFTC with clear authority for civil enforcement and regulation of fraud, market manipulation, and other abuses in the OTC derivative markets." Though that authority's no good if you can't find plain-vanilla (let alone derivative) scammers like Bernie Madoff, hiding in plain sight and chairing the nation's largest stock market.
"Sixth, we will work with the SEC and CFTC to tighten the standards that govern who can participate in the OTC derivative markets. We must zealously guard against the use of inappropriate marketing practices to sell derivatives to unsophisticated individuals, companies, and other parties.
"Finally, we will continue to work with our international counterparts to help ensure that our strict and comprehensive regulatory regime for OTC derivatives is matched by a similarly effective regime in other countries." Or all the crooks will just move to the Caribbean and do it online from there, tax free.