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The Costs of Regulating Derivatives

posted by Stephen Lubben

So the outgoing chair of ISDA complains that banks will have to pass on the costs of Dodd-Frank to end users of derivatives. Undoubtedly the usual crowd -- primarily the WSJ op-ed page -- will run with this evidence of yet another hit to American competativenes coming out of Dodd-Frank.

But maybe we could stop and consider if this simply means that users of derivatives will now incur the true costs of their trades, and will no longer be subsidized by the Treasury.


One of the reasons I think it might have been better to let the banks fail back in 2008 -- if they don't want to be regulated they should take the consequences. Yes, I know the (likely) effects on the economy, but I think in some ways we're in worse shape today with the implied guarantee.

I generally dislike regulation (too often there are unintended consequences) but banks can't have it both ways and there's no real way to go back on the government guarantee against failure.

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