Over-the-Counter Derivatives Will Be Illegal (SMITHSONIAN)
- 6 years ago
Many of the financial products that are sold today will be regarded, correctly, as not in the best interests of customers.
Question: What will Wall Street look like in 2050? Simon Johnson: A hundred years ago you could stand on the street outside here and sell anything you wanted in a bottle and tell people it was a patent medicine and it would make them better. You could sell things that had no effect and you could sell things that would kill them. That is now a serious crime. You would be arrested and taken away if you tried to do that today. And I think in 50 years, many of the practices - many of the things that are sold as being beneficial to customers on Wall Street by financial firms will be illegal. They will be regarded correctly as not in the best interests of customers and if you try to sell them, you will get yourself into serious trouble. Question: What's an example of something that could become illegal? Simon Johnson: Well, I think over-the-counter derivatives. We've seen school boards in Wisconsin for example, just to take one prominent example, recently lose a lot of money on financial products they didn't understand. This is strikingly reminiscent of the way Orange Country lost money in the early 1990's on derivative products that they didn't understand. Now, you can say and the markets say now, "Well, they were sophisticated buyers. It's caveat emptor, buyer beware, but I don't think in 50 years that will be an acceptable defense. Recorded on March 31, 2010Interviewed by Jessica Liebman
Question: What will Wall Street look like in 2050? Simon Johnson: A hundred years ago you could stand on the street outside here and sell anything you wanted in a bottle and tell people it was a patent medicine and it would make them better. You could sell things that had no effect and you could sell things that would kill them. That is now a serious crime. You would be arrested and taken away if you tried to do that today. And I think in 50 years, many of the practices - many of the things that are sold as being beneficial to customers on Wall Street by financial firms will be illegal. They will be regarded correctly as not in the best interests of customers and if you try to sell them, you will get yourself into serious trouble. Question: What's an example of something that could become illegal? Simon Johnson: Well, I think over-the-counter derivatives. We've seen school boards in Wisconsin for example, just to take one prominent example, recently lose a lot of money on financial products they didn't understand. This is strikingly reminiscent of the way Orange Country lost money in the early 1990's on derivative products that they didn't understand. Now, you can say and the markets say now, "Well, they were sophisticated buyers. It's caveat emptor, buyer beware, but I don't think in 50 years that will be an acceptable defense. Recorded on March 31, 2010Interviewed by Jessica Liebman
Question: What will Wall Street look like in 2050? Simon Johnson: A hundred years ago you could stand on the street outside here and sell anything you wanted in a bottle and tell people it was a patent medicine and it would make them better. You could sell things that had no effect and you could sell things that would kill them. That is now a serious crime. You would be arrested and taken away if you tried to do that today. And I think in 50 years, many of the practices - many of the things that are sold as being beneficial to customers on Wall Street by financial firms will be illegal. They will be regarded correctly as not in the best interests of customers and if you try to sell them, you will get yourself into serious trouble. Question: What's an example of something that could become illegal? Simon Johnson: Well, I think over-the-counter derivatives. We've seen school boards in Wisconsin for example, just to take one prominent example, recently lose a lot of money on financial products they didn't understand. This is strikingly reminiscent of the way Orange Country lost money in the early 1990's on derivative products that they didn't understand. Now, you can say and the markets say now, "Well, they were sophisticated buyers. It's caveat emptor, buyer beware, but I don't think in 50 years that will be an acceptable defense. Recorded on March 31, 2010Interviewed by Jessica Liebman
Question: What will Wall Street look like in 2050? Simon Johnson: A hundred years ago you could stand on the street outside here and sell anything you wanted in a bottle and tell people it was a patent medicine and it would make them better. You could sell things that had no effect and you could sell things that would kill them. That is now a serious crime. You would be arrested and taken away if you tried to do that today. And I think in 50 years, many of the practices - many of the things that are sold as being beneficial to customers on Wall Street by financial firms will be illegal. They will be regarded correctly as not in the best interests of customers and if you try to sell them, you will get yourself into serious trouble. Question: What's an example of something that could become illegal? Simon Johnson: Well, I think over-the-counter derivatives. We've seen school boards in Wisconsin for example, just to take one prominent example, recently lose a lot of money on financial products they didn't understand. This is strikingly reminiscent of the way Orange Country lost money in the early 1990's on derivative products that they didn't understand. Now, you can say and the markets say now, "Well, they were sophisticated buyers. It's caveat emptor, buyer beware, but I don't think in 50 years that will be an acceptable defense. Recorded on March 31, 2010Interviewed by Jessica Liebman