chiro said:
That raises a question. When derivatives were changed from being regulated under gambling laws to being unregulated
Most of that happened in the late-19th century before my time.
However, unless you are very careful about regulations, they tend to be irrelevant. Suppose every country in the world outlaws derivatives expect for South Elbonia. At that point what you can do (and what people do do) is to write all of the contracts in South Elbonia. One thing about money is that since everything is in cyberspace, if you want to do something that can't be done under US law, you just virtually move the money to somewhere else in the world, and do it there.
In fact, the US has extremely (and has always had) strict restrictions on derivatives. England doesn't, which is why most derivative transactions end up happening in London. Thanks to the internet, it doesn't matter since you can physically be in NYC and then "virtually" have all of the transactions take place in London,, and subject to English law.
The current set of regulations are a bit different because they come from the Basel Committee. Basically all of the world's major regulators have gotten together and hammered out some principles which everyone needs to comply with. Banking regulation *has* to be done globally and with consensus from *all* of the major nations.
The technical term for this sort of thing is "regulatory arbitrage."
What did the people in the positions like yourself and your senior manager think and say when this kind of thing happened?
Nothing to think about, since it turns out to be largely irrelevant. US law doesn't effect transactions in London.
Funny story since London stayed a financial center after the British Empire fell specifically so that US banks could get around US banking restrictions in the 1960's. One reason that the US had to get rid of a lot of banking regulations in the 1970's was that they were largely irrelevant, since people were doing stuff in London anyway. One of the big drivers of the London banking industry was curiously the Soviet Union that wanted to keep its dollars in London banks since (for obvious reasons) they didn't think it would be a good idea to have Soviet money in the US. Hong Kong become a financial center for similar reasons (i.e. Chinese Communists would rather keep their dollars here in the 1960's).
One thing about finance is that you quickly find interesting cultural and legal differences. For example, the US has a strongly moralistic culture that considers gambling (whether in a casino or a stock market) to be "sinful" whereas the English don't have that attitude. So the US and English banking systems are different in some pretty fundamental ways. The US prohibits most types of gambling, whereas English bookmakers will let you put bets on just about anything. The US prohibits selling derivatives to small investors, whereas this is done routinely in Europe where derivative securities play the same sort of role as mutual funds.
So how US law treats derivative securities turns out to be rather unimportant, because everything happens in London, and the English aren't about to change their laws just to make the US happy. Also, you could theoretically impose restrictions on moving money between the US and other countries, but that turns out to be too messy. China can do that, but if you make it hard to move dollars between different countries, then people will stop using dollars.
Also gambling is a state issue, which means that as long as it is o.k. in New York, it doesn't matter. If NY state got suicidal passed laws that really made it impossible to do business in NYC, then Las Vegas is going to becomes a financial center, and good luck convincing Nevada to ban gambling.
(Every wonder why credit card companies are all located in South Dakota?)
Finally, international regulation is effective in some things. One reason Al-Qaeda hasn't been able to do anything is that *no one* will take AQ money. Similarly, the North Koreans got a lot nicer once it was clear that the international banking system would squeeze them. So if you are a terrorist or building nukes, then no one will do business with you. If you want to get around gambling laws, then lots of people will.