Geithner Proposes Global Derivatives Rules

Just last week in my post entitled, “Top 5 Problems Facing the Economy 3,” I stated that business frequently throw off the threat of increased regulation by claiming that they will take their business to a friendlier country with more lax laws and regulations.  The focus of the post was the lack of transparency in financial markets.

I also said, “Unfortunately, because there is no set of comprehensive and uniform set of international business laws or regulations, countries and international businesses act in cahoots with one another to create loose laws and regulations in order to placate businesses.”

So enter U.S. Treasury Secretary Timothy Geithner who today announced that he wants global financial market regulators to develop uniform, international standards for derivatives markets.  Even if I disagreed with the details of the plan, I would still be pro-uniting the standards for the very reasons I stated above.

In fact, Geithner and I agree with one another, he said today, “Without international consensus, the broader cause of central clearing will be undermined. Risk in derivatives will become concentrated in those jurisdictions with the least oversight. This is a recipe for another crisis.”

Furthermore, I appreciate the focus of the Treasury Secretary on the derivatives market, because as I have also written about, the worldwide derivatives market is roughly 10x the size of annual worldwide gross domestic product (GDP).  And those markets are largely opaque to regulators.  This is a prescription for disaster.

Kudos to Mr. Geithner.  I will continue to track this issue closely.

Jason