The Financial Times recently published this article about the role of derivatives in the current economic crisis.  The report focuses on Gary Gensler, Chairman of the Commodity Futures Trading Commission and his recent statement that over-the-counter derivatives “were at the heart and not a side effect of the financial crisis.”

It goes on to give Mr. Gensler’s specific opinion about the effects of the lack of regulation and oversight:

Gary Gensler, chairman of the Commodity Futures Trading Commission, said Wall Street dealers need to be “explicitly” regulated for derivatives transactions, in addition to existing government oversight, as the risks of unregulated derivatives could bring down the financial system.

“Some opponents of reform – some I would say in this room – would say this really wasn’t at the centre of the crisis, the crisis was about mortgage underwriting practices, the crisis was about not enough capital in the banks and so forth,” Mr Gensler said in a speech to the Council on Foreign Relations in New York.

“But I believe that the over-the-counter derivatives marketplace was in fact part and parcel to this crisis.”

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(Photo: Brooks Elliott)