Derivatives Regulation
The above link is an article on some intense lobbying efforts going on at our nation's capital. The issue has to deal with the 'unregulated' hedging and derivative industry.
I understand the need to regulate, but there needs to be a middle ground so that markets are able to work freely and correctly to support the business needs of the consumer.
For example, take the airline industry. Airlines, as this article points out, use hedging for their gasoline contracts. Airlines purchase large contracts of gasoline and then buy hedges to protect against a sudden increase or decrease in the cost. Obviously, an increase in the price of gas will ultimately benefit the airlines who have long-term contracts with cheaper gas. However, decreases in the price of gas with their long-term pricing in place could hurt them from a competitive pricing standpoint.
What is yet to be determined, and why so many companies (and not necessarily Wall Street hedge fund managers) are concerned about is the depth and severity of the regulation.
Certainly you could argue that Wall Street's (or more aptly certain individuals) greed took advantage of an open regulatory environment (much like the bank's loose lending standards) to increase the volatility and speculation in the commodities, futures, and securities markets in 2007 and 2008 (hence the temporary restriction of short selling in 2008).
I hope and pray that our legislators will be wise in their pursuit of control with an eye towards free markets...
Grace & Peace
PLW
'...Loose lending standards...' is putting it kindly.
ReplyDeleteI'm glad to see someone of a conservative bent acknowledge there was an "...open regulatory environment..." and that it could and was indeed "...taken advantage of..." Please pass this on to the folks at CNBC and the WSJ editorial board.
As for the article, I wholly agree that there could be some handcuffing as a result of overzealous regulatory provisions in any new oversight. However, one of the key statements in that article related to Chesapeake Energy Co's hedging, which WAS collateralized at nearly 200%. They certainly wouldn't be affected, at least not by the concern of being 'undercollateralized.'
Philosophically-speaking, doesn't regulation stem from the conflict--however real or imagined--of granting and individual or entity freedom versus keeping them from wetting themselves, and subsequently needing others to clean up the mess?
In other words, should we allow people to control 100% of their retirement money knowing that if they "blow it" they're going to need some form (the fear being 'public') assistance?
I can think of 1,000 health care- related examples of this quandry (freedom to smoke vs. 'public' cost, etc.).