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Full-Text Articles in Law
How Deregulating Derivatives Led To Disaster, And Why Re-Regulating Them Can Prevent Another, Lynn A. Stout
How Deregulating Derivatives Led To Disaster, And Why Re-Regulating Them Can Prevent Another, Lynn A. Stout
Lynn A. Stout
When credit markets froze up in the fall of 2008, many economists pronounced the crisis both inexplicable and unforeseeable. That’s because they were economists, not lawyers. Lawyers who specialize in financial regulation, and especially the small cadre who specialize in derivatives regulation, understood what went wrong. (Some even predicted it.) That’s because the roots of the catastrophe lay not in changes in the markets, but changes in the law. Perhaps the most important of those changes was the U.S. Congress’s decision to deregulate financial derivatives with the Commodity Futures Modernization Act (CFMA) of 2000. Prior to 2000, off-exchange derivatives contracts …
Derivatives And The Legal Origin Of The 2008 Credit Crisis, Lynn A. Stout
Derivatives And The Legal Origin Of The 2008 Credit Crisis, Lynn A. Stout
Lynn A. Stout
Experts still debate what caused the credit crisis of 2008. This Article argues that dubious honor belongs, first and foremost, to a little-known statute called the Commodities Futures Modernization Act of 2000 (CFMA). Put simply, the credit crisis was not primarily due to changes in the markets; it was due to changes in the law. In particular, the crisis was the direct and foreseeable (and in fact foreseen by the author and others) consequence of the CFMA’s sudden and wholesale removal of centuries-old legal constraints on speculative trading in over-the-counter (OTC) derivatives. Derivative contracts are probabilistic bets on future events. …
Regulate Otc Derivatives By Deregulating Them, Lynn A. Stout
Regulate Otc Derivatives By Deregulating Them, Lynn A. Stout
Lynn A. Stout
When credit markets froze up in the fall of 2008, many economists pronounced the crisis inexplicable and unforeseeable. Lawyers who specialize in financial regulation, and especially the small cadre who specialize in derivatives regulation, knew better.That's because the roots of the catastrophe lay not in changes in the markets, but changes in the law. In particular, the credit crisis can be traced to Congress's 2000 passage of the Commodity Futures Modernization Act, which radically altered the traditional legal approach to financial derivatives. This shift in the legal treatment of financial derivatives has brought the banking system to its knees. The …
Betting The Bank: How Derivatives Trading Under Conditions Of Uncertainty Can Increase Risks And Erode Returns In Financial Markets, Lynn A. Stout
Betting The Bank: How Derivatives Trading Under Conditions Of Uncertainty Can Increase Risks And Erode Returns In Financial Markets, Lynn A. Stout
Lynn A. Stout
On April 12, 1994, Procter & Gamble Co. announced that it had incurred pre-tax losses of $157 million from trading in leveraged interest rate swaps, a form of financial derivative. At the time that figure seemed enormous. Yet within a year, Procter & Gamble's misfortune had been overshadowed by that of Orange County, a wealthy California enclave that lost an estimated $2.5 billion of its investment fund as a result of dealings in reverse-repurchase agreements, inverse floaters, and other arcane instruments. Recent months have seen further losses by investment funds, government entities, and even colleges and Native American tribes. Perhaps …
Regulate Otc Derivatives By Deregulating Them: Response To Comments, Lynn A. Stout
Regulate Otc Derivatives By Deregulating Them: Response To Comments, Lynn A. Stout
Lynn A. Stout
Response to comments by Jean Helwege, Peter Wallison, and Craig Pirrong on the author's article, "Regulate OTC Derivatives By Deregulating Them." Article predates the author's affiliation with Cornell Law School.
Regulation Of Speculation In The Financial Market: Focusing On Derivative Instruments, Christopher Chao-Hung Chen
Regulation Of Speculation In The Financial Market: Focusing On Derivative Instruments, Christopher Chao-Hung Chen
Christopher Chao-hung Chen
This article argues that market speculation is a conduct to acquire benefits by undertaking risk. Derivative instruments are powerful tools for market participants to conduct market speculation, which may help hedging, market making and completing investment market. However, pure and excessive speculation might cause net loss of market efficiency and create external costs. Some speculative transactions may imply asymmetric information. Market speculation might also lead to market abuse and even systemic risk. These reasons provide the basis to regulate market speculation by derivatives trading. This paper argues that Taiwan law might build on current regulatory model centring on the type …