While the effects of government bailouts and spending is still to be determined, Treasury Security Geithner does seem to be responsible for stimulating at least one industry - the exchanges. Since the announcement of his intent to shift more over-the-counter derivative trading onto the exchanges, the share price for the CME Group is up 27 percent, while the share price of Deutsche Borse (owner of the Eurex derivative exchange) is right behind, up 21 percent (see Financial Times article).
CME Group Daily Chart (1 year)Source: Big Charts
In addition to the exchanges being able to trade more credit derivative products, such as credit default swaps, massive stimulus spending will also make it likely that demand will increase for interest rate products that are traded on the futures exchanges. In particular, the CME should do well given its trading in the popular Eurodollar contract. Yet, all is not rosy, as the introduction of new multilateral trading facilities will also require many of the existing exchanges to modify the way they currently do business, possibly also forcing a cut in fees. The "final" proposed regulations will also have to be carefully examined. For instance, if CDS trading is limited to only those with a direct interest, as opposed to third party speculators, then liquidity will be a fraction of what it is expected, offering less benefit to the exchanges. If, on the other hand, regulations are less restrictive, which seems necessary in order to maintain some type of relatively efficient and liquid market, then the exchanges will certainly benefit from the increased volume, even with a slight reductions in fees. Any rebound in the economy, or continuation of the current new bull / existing bear market rally will also have investors once again dreaming of $700 CME quotes. Let's hope so. After all, an increase in trading and retail participation in the market would certainly be good for more stocks than just the CME Group.
The push to standardize OTC derivatives and move them to a clearing house will cause havoc for corporations because the standard contracts will rarely match precisely the hedged item. That means corporations will rarely qualify for hedge accounting under FAS133 and will either not hedge at all or have imprecise hedges that need to be marked to market without marking the item being hedged (marking only one side of a risk neutral position). Either scenario will make earnings extremely volatile for many firms (from power companies to cereal manufacturers).
The knee-jerk reaction to blindly regulate OTC derivatives is imprudent. It will help some politicians and bureaucrats with their careers and CNBC with their ratings. But it will force US corporations to take more risk, not less.
Don't buy what the mainstream media and populist blogs are feeding you. Think for yourself.
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I agree about the risk. Many of the new regulations being proposed (like keeping 5% of securitized products on your books) will make risk management more difficult for companies. As you mention, standardizing even more contracts will also make risk management less efficient.