Stiglitz: "I strongly support the passage of...derivatives...sections of...Senate Financial Reform"

[ProSense]

Letter from Joseph Stiglitz re. Section 716: Prohibition Against Federal Bailouts of Swaps Entities

Dear Members of the Senate:

I strongly support the passage of the derivatives and swaps regulation sections of the Senate Financial Reform Bill and especially Section 716 (“Prohibition Against Federal Bailouts of Swaps Entities“). If the Senate fails to pass strict regulatory oversight over dangerous over-the-counter derivatives and swaps, then the U.S. economy will continue to be vulnerable to significant financial risks.

Many economists agree that the unregulated, over-the-counter derivatives market played a key role in transforming a financial downturn into a global economic calamity. The derivatives regulation amend-ments that Senators Lincoln and Dodd have incorporated into the “Restoring Financial Stability Act of 2010” bring a critically important measure of regulation over dangerous derivatives and swaps prod-ucts by requiring: exchange-trading and clearing of most standard derivatives; the prudential regulation of major swaps dealers, including capital reserves requirements and business conduct rules; the spin-ning off of risky swaps desks from the systemically risky banks; and the ability of regulators to ban swaps that lead to financial instability or have no economic purpose.

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