A Europe that opens its markets without counterparties, and which does not defend its enterprises and farmers, is finished, he says.
They also benefit most from offsetting buy and sell orders with a central counterparty, without obviously passing their savings on to customers.Developments at the LSE, too, have not always been for the general good.
Sure, the Calpers contract involves big dollars, but if the debtor has a good reason to assume a contract, should a judge say "no" simply because without assumption the counterparty would be treated just a poorly as other unsecured creditors?
Without centralized clearing, counterparty risk cannot be managed efficiently, as trading firms have to sift through statistics and reports from several clearing agencies.
This enables developers to create markets, store registries of debts or promises, move funds in accordance with instructions given long in the past (like a will or a futures contract) and many other things that have not been invented yet, all without a middleman or counterparty risk.
Sounds nonsensical today: The inspector general's report notes that AIG, because of the deregulatory law that Summers and Geithner pushed through, was "able to sell swaps on $72 billion worth of CDOs to counterparties without holding reserves that a regulated insurance company would be required to maintain".
Last week 27 members of Congress wrote Barofksy to request that he investigate the counterparty payments, which AIG disbursed without first seeking partial settlements.
"The scary part," said Mr. Murphy, the risk expert, "is that I'm pretty certain that clearing is being imposed without anyone actually knowing whether it actually reduces counterparty risk or not".
Even those lenders who never got capital would probably not have survived without government rescues of weaker firms to which they had counterparty exposures.Similarly all banks are now plugged into government life-support systems.
