Apr 182010

President Obama says he will veto any financial reform bill that doesn’t bring the derivatives market under control. If he really meant that, he would have vetoed the recent health bill.

Derivatives are a problem in that they obscure what it is a purchaser owns. It’s hard to know how to value them, which makes it difficult for buyer, seller, and regulator. They create opportunities for market distortions.

The same is true of the health care bill. Supposedly there is some pie in the sky that’s going to repay the investment of higher taxes that we’ll be making. But it’s all so vague — it’s hard to connect value and payments in any accountable way. The health care plan should have been subject to the same scrutiny and controls (and perhaps prohibitions) that are needed in the securities market.