The financial crisis needs no introduction. One of its key causes was the write down of billions of dollars worth of derivative products tied to US home loans. In the aftermath of the crisis, the cry for reform of derivatives was raised. But Mark Mobius, who oversees $50bn as executive chairman of Templeton Asset Management?s emerging markets group, sees precious little progress. ?There is definitely going to be another financial crisis around the corner because we haven?t solved any of the things that caused the previous crisis … Are derivatives regulated? No. Are you still getting growth in derivatives? Yes.? These comments are worrying because they are true. Estimates put derivatives at a minimum of 10 times global GDP. The Dodd-Frank overhaul, as well as Basel rules, mean many derivatives will be traded via clearing-houses to increase supervision, but the amount of influence top banks have on clearing-houses, as they seek to protect one of their most profitable areas, is worrying. Greater action is needed to avoid repetition and farce.
Not only must clearing-houses withstand capture in order to oversee properly, but old views that existed, that business should be allowed to continue as investors wish, must change. A large number of market watchers says that derivative values are disproportional, and reducing them through greater regulation will protect the globe from an over-exuberant sector. Let?s hope that on Monday, regulators were paying attention to the Yul Brynner of Wall Street.