You can hear them yelling on Wall Street already, can’t you:
Marking its first major effort to overhaul financial regulation, the Obama administration will seek new authority to supervise the virtually unregulated complex financial instruments, known as derivatives, that were a major cause of the market crisis, Congressional aides and others who have been briefed on the decision said Wednesday.
The administration will ask Congress to approve legislation that would impose a new government oversight structure for the instruments, which Warren Buffett once called “weapons of mass destruction.”
In a two-page letter to Congressional leaders, Treasury Secretary Timothy F. Geithner asked for the swift approval of a measure that would require many kinds of derivative instruments, including credit default swaps, to be traded on exchanges and subject to tighter regulation. Derivatives can take many forms, but in total there are trillions of dollars’ worth exchanging hands every day around the globe.
The letter asked the lawmakers to give regulators the authority to impose new capital and business conduct requirements on the large Wall Street companies that issue the financial instruments. Capital requirements would, for example, require companies that issue derivatives to hold capital in reserve in case of a default, much the way banks must hold reserves when they make loans.
The mother of all freak-outs is about to happen, and once again, I am going to bet on the swarthy fellow. Obama’s only concern should be that the regulations make sense, because I would guess there is ample political willpower and public support to make this happen.