Murder by margin

Congress has codified in the Dodd-Frank Act the argument by America's Fortune 500 that they cannot "afford" to comply with exchange/clearing margins. Such a regime, they say, would constrain their growth and development (jobs!), not to mention their Good Works (puppy shelters?). And so, industrial and commercial giants will be able to remain largely outside the remit of federal oversight by continuing to hedge with swaps on a purely private basis.  We are talking here about many if not most of the trades that existed prior to the recent financial crisis.

 Pause here, please, to hear the guffows of family farmers who have complied with the exchange/clearing margin regime for about 150 years.

 So, what does margining really do? Tom Cruise knows: "Show me the money!" Want to trade? Deposit some funds as collateral first.  If your trade posts paper losses, add more. Neither the original deposit nor any additional deposits will truly be "lost" unless, in the end, you really DO owe money. Otherwise, you will get all of it back. Meanwhile, you can deposit interest-bearing securities that yield income to you. That is a better outcome than pursuing a failed merger, or a dry drilling exploration, or a new product that tanks.

 According to news reports, corporate America is sitting atop a $2 trillion cash heap. One major corporation, exempt under Dodd-Frank, just reported a NET PROFIT of $9+billion for its 4th quarter alone, after all of the spending it could muster.

It is too late to change the law but this does not justify changing the facts.

Philip McBride Johnson is a former CFTC chairman. He writes regular blogs for You can reach him at

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