U.S. Draft Law Would Ban Most Trading in Credit Swaps

[jordi_fanclub]

Source: Bloomberg

Jan. 29 (Bloomberg) -- Draft legislation that would change how over-the-counter derivatives are regulated might prohibit most trading in the $29 trillion credit-default swap market.

House of Representatives Agriculture Committee Chairman Collin Peterson of Minnesota circulated an updated draft bill yesterday that would ban credit-default swap trading unless investors owned the underlying bonds. The document, distributed by e-mail by the committee staff in Washington, would also force U.S. trading in the $684 trillion over-the-counter derivatives market to be processed by a clearinghouse.

“This would basically kill the single-name CDS market,” said Tim Backshall, chief strategist at Credit Derivatives Research LLC in Walnut Creek, California. “Given the small size of many issuers’ bonds outstanding, this would make it practically impossible for the CDS market to exist.”

U.S. regulators and politicians are stepping up pressure on banks to use clearinghouses and agree to increased oversight of the OTC markets to improve transparency amid the credit crisis. Bad bets on credit-default swaps led to the U.S. takeover of American International Group Inc. in September.

Read more: http://www.bloomberg.com/apps/news?pid=20601087&sid=aEmXJKZFyaMY&refer=home

---

An extreme efficient markets believer could say that CDS make capital markets more efficient.
It's a lie!... what CDS do is transfer wealth for producers to non-productive activities.

[dipsydoodle]

1. Given that the credit swop issue,

or should I say spoof ,seems to have been the main cause of current issues then banning such trades would be a good idea.

[xchrom]

2. it gets rid of a bad market idea. nt

[MostlyAmused]

3. encouraging

A move in the right direction. Hope this legislation stands a chance.

[groundloop]

4. It's these types of rules

that will make a big difference in making sure we don't have another crisis again. Yet for the most part the MSM and most of the American people will be totally ignorant of this work.

[UpInArms]

5. the $684 Trillion dollar boondoggle

and transfer of wealth

:spit:

jordi_fanclub - you should post this to the Stock Market Watch - it will get a lot of attention there

http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=102&topic_id=3712351&mesg_id=3712683

:hi:

[Festivito]

6. I hope that April 2004 SEC ruling has been reversed.

The one that allowed the five biggest banks to lend unlimited amounts of money. (Six months before the 2004 elections.)

[jazzjunkysue]

7. I read that sentence 4 times and I still have no idea what it's about.

That's why I love DU: If you guys say it's a good thing, I feel better.

I hope all the goofball schemes can be stopped with some real oversight.

[CatholicEdHead]

8. It's about time

I think it was on NBC Nightly News a few days ago they were actually pushing keeping them as a way to recovery. :crazy:

[avaistheone1]

9. I think this bill is a good idea.