- The Foundry: Conservative Policy News from The Heritage Foundation - http://blog.heritage.org -

Dorgan’s Naked Idea – Doesn’t Work

Posted By Dave Mason On May 19, 2010 @ 2:00 pm In Economics | Comments Disabled

[1]

As debate on the Wall Street “Reform” bill winds down in the Senate, Sen. Byron Dorgan (D-ND) is still pushing his ban on “naked” credit default swaps.

We warned that the idea wouldn’t work. [2] Now we have some real world experience with just such a proposal: Germany banned the practice in German financial markets Tuesday night, and stock prices fell in Germany and worldwide [3].

Observers called the German ploy “an act of desperation and a refusal to address the fundamental problems at hand,” and warned that the move could cause trading in swaps markets to freeze up.

Swap prices are a symptom, not a cause of credit problems.  Restricting markets will not solve economic problems in the US any more than they did in Germany.


Article printed from The Foundry: Conservative Policy News from The Heritage Foundation: http://blog.heritage.org

URL to article: http://blog.heritage.org/2010/05/19/dorgan%e2%80%99s-naked-idea-%e2%80%93-doesn%e2%80%99t-work/

URLs in this post:

[1] Image: http://www.foundry.org/wp-content/uploads/Wall-Street-10-4-141.jpg

[2] We warned that the idea wouldn’t work.: http://www.heritage.org/Research/Reports/2010/05/The-Senator-Has-No-Clothes-Why-a-Ban-on-Naked-Credit-Default-Swaps-Is-Ill-Advised-and-Impractical

[3] stock prices fell in Germany and worldwide: http://www.bloomberg.com/apps/news?pid=20601087&sid=aoElolQ0ELXc&pos=6&nstrack=sid:2206536%7Cmet:2%7Ccat:0%7Corder:3:

Copyright © 2011 The Heritage Foundation. All rights reserved.