Gambling on Our Financial Future: How the Federal Government Fiddles While State Common Law is a Safer Bet to Prevent Another Financial Collapse

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Brian M. McCall

Warren Buffett once referred to derivatives as “financial weapons of mass destruction.” Academics, analysts, politicians and regulators have argued that one form of derivative contract was responsible, at least in significant part, for the mass destruction of the financial system in 2008: credit default swaps (“CDSs”).

Eric Dinallo, the New York Superintendent of Insurance, compared the 2008 Financial Crisis to the 1907 Panic because in his opinion both were caused by unregulated betting on markets by people who did not own assets in those markets. He explained: “Many compare this financial crisis to the stock market crash of 1929, but it is closer to the credit freeze and bank panic of 1907 . . . . What has been forgotten is one major cause of the crisis—unregulated speculation on the prices of securities by people who did not own them. These betting parlours, or fake exchanges, were called bucket shops because the bets were literally placed in buckets.”

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