AIG, Greece, and the Problem with Derivatives

The New York Times recently posted this editorial about the connection between Greece’s financial problems and Wall Street and the need for better regulation of derivatives trading.

As Greece has tottered on the brink of fiscal chaos, threatening to drag much of Europe down with it, Wall Street’s role in the fiasco has drawn well-deserved scorn.

First came the news that Greece had entered into derivatives transactions with Goldman Sachs and other banks to hide its public debt. Then came reports that some of those same banks and various hedge funds were using credit default swaps — the type of derivative that kneecapped the American International Group — to bet on the likelihood of a Greek default and using derivatives to wager on a drop in the euro.

The article goes on to talk about the problems that need to be fixed in order to prevent future economic crashes as the result of derivative trading.

Click here to read the full article.