Gary Cohn, chief economic adviser to the President, voiced concern over the weekend about risk posed by Wall Street clearinghouses that became systemically important following the 2008 financial crisis.
As Bloomberg reported:
As ‘we get less transparency, we get less liquid assets in the clearinghouse, it does start to resonate to me to be a new systemic problem in the system,’ Cohn, director of the White House’s National Economic Council, said at a banking conference in Washington on Sunday.
Cohn isn’t the first to raise the risk. JPMorgan Chase & Co. and BlackRock Inc. have argued for years that clearinghouses pose their own threats, shifting risk to just a handful of entities. The Treasury Department’s Office of Financial Research has warned that clearinghouses used for derivatives trades can be vulnerable and potentially spread risks through the financial system.
While it is worth noting that this is another example of how the government’s response to a crisis they created made the economy as a whole more fragile, the good news for Mr. Cohn is that there is an exciting technological breakthrough that allows people to transparently move money without relying upon third parties to guard against shady counterparties: blockchain.
This post was published at Ludwig von Mises Institute on October 17, 2017.