From “Out of the Black Hole”, an article by Michael Greenberger, a professor at the University of Maryland School of Law and a former division director at the U.S. Commodity Futures Trading Commission, that appeared on April 26th, 2010 in The American Propect.
“Unregulated OTC derivatives have been at the heart of systemic or near systemic collapses — from the 1994 bankruptcy of Orange County, California; to the collapse of Long Term Capital Management in 1998; to the bankruptcy of Enron in 2001?2002; to the 2008 sub-prime meltdown; and now to an emerging European sovereign-debt crisis in which derivatives were used to disguise the extent of debts taken by nations such as Greece. After each crisis, governments worldwide proclaim that the OTC market must be regulated in the same manner as equity markets, which are dwarfed in value by OTC derivatives. However, Wall Street always deflates those aspirations with aggressive lobbying and campaign contributions. The present financial-reform regulatory effort may be the last chance to prevent the kind of crisis that was dodged in 2008 — a worldwide depression. Wall Street and its allies must be stopped now.
To avoid further systemic and irreparable meltdowns, legislation must be enacted that requires all standardized derivatives to be guaranteed by well-capitalized clearing facilities and traded on fully transparent and well–regulated exchanges. This is what the Obama administration’s June 2009 white paper promised. The president and Congress should be made to stick to that promise, or the world economy will devolve into a black hole with far greater pull than the regulatory black hole that exists for swaps.”