Things Fall Apart: Regulating The Credit Default Swaps Commons
92 Pages Posted: 24 Mar 2010 Last revised: 20 Nov 2010
Date Written: March 16, 2010
Financial markets are an important national and international infrastructure resource that reflect attributes similar to the those that characterize commons, as described in property law literature. Through a case study examining the credit default swap market, this Article illustrates the analogy between financial markets and a traditional commons. After exploring the attributes of a commons, this Article examines the costs and benefits of the credit default swap market. Similar to a traditional commons, tragedy in financial markets occurs when market participants capture benefits while imposing the costs or negative externalities from their activities on other members of society. Commons scholars’ empirical research suggests three traditional approaches to tragedy in a commons - deregulation, privatization, and regulation by a central, external authority.
Keywords: financial markets, regulation, derivatives, Dodd-Frank, SRO, stock exchanges, clearing houses, commons
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