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**Joshua Nightshade** · 06-08-2012, 12:49 AM

tl;dr:

Quote:

All of these derivatives issues are oppressively dull and technical, and it's extremely difficult for most people to imagine how something like Jim Himes' exemption for foreign affiliates can actually affect their daily lives. But having an unregulated market instead of a regulated one might mean you'll pay an extra 50 cents for every gallon of gas (or possibly more, even according to Goldman Sachs). Or you might have to pay hundreds or thousands more in taxes every year because your town or county or country, if you happen to live in Greece, grossly overpaid an investment bank when it borrowed money. An unregulated derivatives market essentially gives Wall Street a way to place hidden taxes on everything in the world.

The best way to explain where those hidden taxes come from is to compare a regulated market to an unregulated one. It's the difference between buying soap and buying drugs. You go into a corner store and there's a price tag on the soap, but you can always go across the street, or on the Internet, to see what soap costs someplace else. But when you go to buy an eight ball of coke, you have to ask your dealer what the price is, and it's not like you can compare prices online. If you're tough and streetwise and you know what coke costs, you might get it for a couple hundred bucks. But if you're some quivering Ivy Leaguer idling in a Lexus, the price might be $400.

That's how the swaps market works. It operates completely in the dark. If you're some Podunk town in Texas or Alabama and you need swaps financing, you've got to ask Goldman Sachs or Morgan Stanley what it costs. There's no exchange where you can compare prices. And modern investment bankers are ethically a notch below your average drug dealer. They will extract from their customer – a town, an airline, a chain of retail stores – whatever they think he'll pay. And that extra cost will be passed on to you by the overcharged customer, in the form of higher taxes, bigger home-heating bills, higher sewer rates or pricier airline tickets. Wall Street will be taking a bite out of you every time you write a check.