Asking the SEC and CFTC to cooperate on new derivatives rules sounds like a great idea. Rather than Democrats and Republicans bashing through everything, let the experts sort it out. Philip McBride Johnson has a word of warning. The SEC and CFTC see eye to eye about as much as Barack Obama and Sarah Palin.
The financial reforms being considered by the US Congress seem fundamentally sound.
First, find out the size, shape and behavior of over-the-counter transactions by putting as many as possible on to visible trading venues. Second, establish a reliable system of collateralization for them, following the adage “In God we trust, the rest pay cash”.
Finally, provide the safety net of a central counterparty clearing mechanism that can rescue a deal even when the direct parties and their intermediaries have exhausted their resources.
But the reforms include two features that seem weird. First, the classification of...