“Imagine there are no official stock exchanges. Anybody can cook up shares in a company and try to sell them to you. There is no Securities and Exchange Commission to require corporations and brokers to be honest with shareholders. There are no disclosure laws that require stock issuers to share basic information about their business. The world of stock issuance and trading did once function that way. But it was full of fraud and too many people got hurt, so gradually rules and public stock markets evolved and regulatory bodies were created to enforce minimum standards of transparency and accountability. But today there’s a parallel universe of financial derivatives – little more than third-party bets, however complex, on underlying securities or events. This universe functions in the Wild West style of the bad old days, before public stock markets and government regulation. And no one is doing much about it.
Dennis Kelleher, the head of Better Markets, a nonprofit that promotes intelligent regulation of the financial sector, says derivatives are the financial equivalent of nuclear weapons in their potential for economic destruction. “
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