This is the Cato Daily Podcast for Tuesday, April 20, 2010.

I'm Caleb Brown.

Getting a handle on those risky derivatives means top-down regulation,

according to the Obama administration but a mechanism

senator blanch Lincoln and others want to use to bring light to those

derivatives the clearinghouse has a few problems that according to Cato Institute

senior fellow Peter Van Doren, clearinghouses have

until this legislation been largely voluntary, and while clearinghouses deal well with standardized

commodities, derivatives are anything but standard.

Clearing houses are a form of insurance for parties that trade in futures markets of any sort,

and their voluntary organizations.

They, the main benefit is of all the trades that take place in a futures market every day,

if they were bilateral, that is if they did not involve a clearinghouse,

each separate transaction would involve collateral on the part of both parties.

And that can add up if you're trading thousands of times a day.

So a clearinghouse, the benefits are it admits people, it screens them for credit worthiness and things like that.

And in turn, for their capital that they put up and put into the clearinghouse.

The clearinghouse then charges them only once for their net position, not for all the gross positions they take and trades, many of which may balance each other off in a 24-hour period.

So a Clearinghouse has benefits by, in effect,

charging collateral only for the net position

rather than for all the separate gross positions

that members of a Cle clearinghouse would take.

...