Comment Text:
Dear Chairman Gensler,
I am a concerned citizen, tax payer and mother. I noticed that the public comments are from lawyers and people working in the financial services industry. I am not a lawyer, or financial wiz or a PhD with a degree in mathematics, so please accept my comments simply as someone who has contributed to paying the taxes on the bailouts.
After reading some of the comments I am not happy about the direction that is being suggested by industry. Since I have laundry and shopping to do, today, I will be brief and not deal with the minutiae of the regulations; my comments will be broad brush strokes.
Capital Markets will function, in the best interests of our country, with greater transparency and if the margin requirements are reasonably high. We’ve all felt the havoc when banks they get to set the limits on what they determine as “appropriate risk”. Importantly, legitimate business practices do not need to need to hide from transparency and reasonable regulation that will prevent another market and economic collapse.
Notably one panelist at the recent Capital and Margin Roundtable Meeting, in December, remarked: “…hope the counterparties that deal in these kinds of transactions already have a robust credit process, and in those situations where the dealer believes that it's appropriate to have collateral or margin, I would hope that that already exists today.” Chairman Gensler “Hope” is not a strategy to base a financial regulation upon. We’ve done that already and it did not work.
That companies engage in OTC derivates trading because they are not required to “post cash” is the very reason that there needs to be a requirement of a cash margin. The rationale presented by industry participants is illogical in terms of preventing further systemic risk. Below are just a few comments lifted from the transcript, from Capital and Margin Roundtable Meeting on Dec 10, 2010, that highlight my point:
>“If we were to fully -- if we had a $15 billion mark, we would have to post $25 billion worth of collateral, something we are fine to do. We are ready to do that.”
Great so the regulation will fit into your existing business model.
>“They make credit determinations based on their knowledge of us.”
Great! Transparency & regulation will fit nicely into your existing business model. Adding transparency to what others already know about you and your company is a good thing for a level playing field.
>“We rely on a system currently that's -- that is principle- based that allows the prudent extension of unsecured credit to our counterparties and to us.”
Thus the regulation will fit nicely into your principals and the “prudent extension” of credit will now be secured instead of unsecured and reduce the risk for the tax payer and make the extension of credit even more prudent.
One commentator notes that things might be handled by a line of credit. Is a line of credit backed by anything, does it mitigate risk? The bottom line is clear- posting cash will help prevent another market meltdown.
The panelists go on in the same vein throughout the transcript. In attempting to manage risk the industry has created more risk for all of us. Industry has used derivates to speculate and take on too much risk. If consumers had a choice between another global financial meltdown and initially higher cost- you can bet we’d take the later and keep our homes and jobs.
Please do the right thing by the American people and regulate what Warren Buffet said in his 2002 annual report: “…derivatives are financial weapons of mass destruction…” Derivates trading needs a firm regulatory hand to ensure the safety of the American economy for the American People.
Thank you for all the good work you do. It is appreciated.
Sincerely,
A mother in Maine
PS Since there is no specific place to post general comments, I’ve selected this one at random, hope that is okay.
