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- iHaveNet.com: Economy
by Sebastian Mallaby
Politically, the
Substantively, the
The
The same uncertainty applies to another of the bill's provisions, which aims to drive derivatives trades onto exchanges.
This reform is good in theory: The huge volume of off-exchange trades has the effect of tying financial institutions into a cat's cradle of interdependence, so that failure at one could bring several others down. But the efficacy of this reform could be undermined by a concession in the
The
Government will be given the power to seize control of a large institution if its impending failure poses a risk to other players. Acting like a bankruptcy court, the government would then wipe out shareholders, fire executives, and close down the business in an orderly fashion. But it is not at all clear that this mechanism will prove effective in a crisis. The government already has a resolution mechanism for deposit-taking banks, the
In the end, two things are certain.
Financial markets consist of uncertain promises about an unknowable future, and so will always be unstable. And the causes of the next financial crisis will not be the same as the causes of the last one.
Sebastian Mallaby is director of the Maurice R. Greenberg Center for Geoeconomic Studies and Paul A. Volcker Senior Fellow for International Economics.
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Financial Reform's Uncertain Promise