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The One Economic Surplus: Job-Killing Regulators November 20, 2014 11:45 AM | Tagged as CFTC, derivatives, Dodd-Frank

WSJ Nov. 20, 2014 – A17: “Now Federal Job Killers Are Coming After Derivatives” by J. Christopher Giancarlo

The Dodd-Frank Act is once again raising its ugly head. The little known Commodity Futures Trading Commission regulates the market of derivatives (futures, options, and swaps) in the US.  The CFTC has identified some 38 areas that more regulations are needed on derivative markets to comply with Dodd-Frank. They contend that swaps are part of the problem that brought on the 2008 financial crisis. So, thus, they regulate. This avoids the fact that government was largely responsible for the financial mess in the first place, but The Biz Bucks Guy leaves that for another blog.

Derivatives are financial securities that are ‘derived’ from an underlying security or financial index, like stocks, currency exchange rates, or commodity prices. Since the days of the Orange County, California bankruptcy in the early 90’s, both the media and the political left have seen derivatives as “the devil”. A first year MBA student quickly learns the truth. Derivatives, properly used, are a key to managing risk of all sorts of things. Great thinkers have won the Nobel Prize for the development of the financial theory surrounding derivatives. Derivatives reduce risk. Reduced risk improves well-being...of the entire world. These are well deserved Nobelists, unlike a few cranks that the committee has deified in recent years. If you mess with the derivative markets, you reduce the well-being of the world.

Recently, Mr. Giancarlo was appointed as a commissioner of the CFTC. He found that, seven months before he arrived, the CFTC published their intent to overhaul the derivative markets with draconian rules, largely flawed and overly complex. In the referenced article, he implores the CFTC to reject these changes. It will kill thousands of jobs in the financial industry.

The 2008 recovery, if you can call it that, is the worst in history since 1929. There are fewer jobs relative to the peak before the crisis. The number of Americans frustratingly leaving the workforce recently set a record high. Middle class incomes continue to fall. The number in poverty continues to climb.

This is the fault of Washington, both legislative and executive branches.   Regulatory overreach is a major contributor. The National Association of Manufacturers reports that Federal regulations now cost about 12% of GDP. Large firms pay about $20,000 per employee to comply. For smaller firms, it’s closer to $35,000.

If the CFTC moves to impose these new regs, ”New York and other US financial centers will give up valuable jobs to cities like London and Singapore that are only too happy, and eagerly waiting, to take them.” And the world’s well-being could be diminished.

[Although opinion is included, The Biz Bucks Blog is primarily written to former students of Biz Bucks training courses to encourage their daily reading of the three opinion pages of the WSJ. This refreshes principles of Biz Bucks courses and improves business acumen on topics not discussed in Biz Bucks training.]


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