Kristianus Pramudito Isyunanda (The Jakarta Post)
Jakarta ● Mon, January 24 2022
Those who have watched The Big Short, a comedy-drama film about the crash of the United States market in 2008, may be rather skeptical, or frightened by financial derivatives. The movie presented the innovative credit default swaps (CDSs) and collateralized debt obligations (CDOs) that became the seeds of the US financial market turmoil.
The takeaway of the movie was that the haphazardly crafted financial derivatives instruments ended up endangering the whole system. Many scholars have similarly voiced post-2008 crisis precautions about the derivatives market regulations.
The late Prof. Lynn Stout of Cornell University argued that changes to the law had caused the market to crash. Stout identified a series of dynamics that removed legal constraints on speculative trading in over-the-counter (OTC) derivatives. The dynamics hence provided leeway for private actors to privately arrange OTC trading, which then became a catalyst for the capitalism beast of speculation.
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