In 2008 unregulated credit default swaps brought the economy to its knees. Ten years later, they may poised to do so again—unless policymakers reign in the big banks.
That’s the call to arms of University of Maryland Law Professor Michael Greenberger, whose new INET Working Paper details how the largest American banks have quietly parked swaps oversees, thus evading the regulations designed to prevent another crisis.
Professor Greenberger and INET President Rob Johmson talk about the paper, including how swaps work, the so-called “moral hazard” of banks knowing they can be bailed out by taxpayers, and how politicians in Washington and state capitals can ensure that risky swaps never again take down the economy. As Greenberger argues, despite the rosy picture of the economy painted by politicians and the media, the lurking danger of unregulated swaps is very much real.
