Bankers are, by common consent, dangerous. If the risk of a re-run of the current financial debacle is to be avoided, it is vital that those who play with the most dangerous capital market instruments should be thoroughly disarmed by watertight regulation. Yet so persuasive is Wall Street in the policy dialogue that we are now witnessing re-regulation with a banker-friendly face.
Consider, first, the over-the-counter (OTC) derivatives markets, the opaque multi-trillion-dollar Sargasso Sea where so much systemic risk resides. This is a huge source of profit to the biggest banks, and an equally huge source of loss to the taxpayer when toxic derivatives blow a hole in balance sheets, as at Lehman Brothers and AIG.
