<p>Dear Intellects,</p>
<p>Shouldn't the derivatives industry be shut down after the crisis it caused? Obama admin. has signed a law a derivatives overseeing committee but is this curtailing significant enough?</p>
<p>Derivatives industry gives us options to trade over stocks and assets ahead of time but is it really necessary to engage in this business? Take a look at indian banks who remained almost unaffected by the mortgage crises (insulated) due to their passive stance and refusal to engage in securities market. Many banks have given back money to the government (TARP money) because they never engaged in the securities/home loans business in the first place.</p>
<p>Function of a commercial bank = Keep people's money and profit by lending money to stable institutions thereby raising interest. I believe the new Volcker rule states that banks can now only entail 3% of capital in hedge funds. Is it economically essential to have the derivatives industry to be a goldstone of capitalism? We are regulated capitalist country that can allow offshoots of individual wealth/potential/incentive without engaging in high risk security markets. Keep banks simple!</p>
<p>Why can't we just shut down derivatives markets? Would this entail shutting down car loans? College loans?</p>
<p>Don’t expect too much activity, this is a business forum for college related info.</p>
<p>Derivatives as a general term are valued in the hundred’s of trillions of dollars. They aren’t going anywhere, plus its hard to think of Wall Street really losing this battle with potential regulators. I mean that big of a number and that many outstanding contracts is truely hard to monitor even if they wanted to. Plus, its called Credit Defaults if I remember right? Even though these had some serious fault in the recession, there are futures for even Ag Commodities that I have seen save some mid to large sized farmers. I mean the biggest problem with the Credit Default was that a buyer didn’t need to own the underlier or even have any exposure to the risk he was hedging. I mean once everyone smart saw what was coming, they all hedged to a handful of the same providers. As you probably already now, I’m just saying their are positives and negatives.</p>
<p>From statements, I’m not certain if I could tell the difference between a commercial bank or an investment bank…</p>
<p>The Glass-Steagall act used to require that commercial banks, investments banks, and insurance companies all had to be separate. Once the act was repealed (under Bush Jr I believe), commercial and investments banks could become one.</p>