World Politics News   Articles for World Politics Course

This post will not be on the American foreign policy quiz on 7 March.  It is provided only to supply background information on the Greek debt crisis that might be of interest to some of you.

I’ve done a little research on the International Swap and Derivatives Association to try to find out who serves on the committee that determines whether or not a “credit event” has occurred.  Here’s the list of the members of the “Determinations Committee” for the European region:  (for a full list of all the regional Determinations Committees, click here.)

Voting Dealers
Bank of America / Merrill Lynch
Barclays
BNP Paribas
Credit Suisse
Deutsche Bank
Goldman Sachs
JPMorgan Chase Bank, N.A.
Morgan Stanley
Societe Generale
UBS

Consultative Dealers
Citibank
The Royal Bank of Scotland

Voting Non-dealers
BlueMountain Capital (Second Term Non-dealer)
Citadel LLC(First Term Non-dealer)
D.E. Shaw Group (First Term Non-dealer)
Elliott Management Corporation (Third Term Non-dealer)
Pacific Investment Management Co., LLC (Second Term Non-dealer)

As you can see, the entities that make these decisions are all major financial institutions.  In some sense, that finding is logical–it is difficult to find people who understand all the intricacies of these complex agreements outside of the financial world.  On the other hand, this is clearly a case of the foxes guarding the hen house.  All of these financial institutions have interests in the outcomes of these decisions.  There is no way to determine whether these decisions are being made in the interests of the global world of finance as a whole or of the specific self interests of each of these financial institutions.

The ISDA membership is patterned after that of any private association or fraternity.  Only institutions that actually sell swaps and derivatives can apply for Primary Membership which is the only part of the ISDA that can cast a binding vote.  Each application is reviewed by the Board of Directors who are themselves all members of the ISDA.  The decision to make the votes public rests with the specific committees–the possibility of a decision to not publicize decisions can apparently be made, although I don’t know how one would even know about such decisions unless someone decided to leak information in contravention of the rules.  Here is a summary of the decision made on the Greek debt situation on 1 March.

The size of the credit derivatives market in mid-2008 was $54.6 trillion.   In short, a great deal of power is concentrated in the hands of a self-selected group that has the power to not even reveal its decisions.