The World Seeks Tough Oversight of Swaps

The criticisms are swarming over credit-default swaps, the insurance-like contracts that nearly took down American International Group Inc. (NYSE: AIG) at the onset of the financial meltdown, as U.S. and European regulators gear up to place tough restrictions on the speculative bets to avoid another recession.

In a speech on Tuesday, Commodity Futures Trading Commission Chairman Gary Gensler suggested several restrictions on credit-default swaps to limit the use of them, but did not suggest and all out ban on the speculative trading.

"We are to a surprising extent working well with international regulators," Gensler said. "I'm optimistic we’ll end up at roughly the same spot."

Gensler added that the agency he oversees does not have the authority to put the recommendation into practice and will have to rely on Congress and other regulator to put the restrictions on speculative trading.

Together with France, Luxembourg and Greece, German Chancellor Angela Markel said on Tuesday that her government is behind the initiative to put a stop to the credit-default swaps. Markel added that Europe will move along with the restrictions, even if the U.S. does not proceed.

President of the European Commission, Jose Manuel Barroso has said that the commission would seriously look into the outright ban of credit-default swaps.

The recent comments against credit-default swaps are the strongest sign thus far that there will be action taken to prevent the speculative trading activity. This comes as the debate rages as to whether the swaps are at the heart of the financial woes in some European countries, or if they simply were a byproduct.

The Securities and Exchange Commission has had no comment on the regulations coming out of talks with European lawmakers concerning the possible ban on the swaps.

It is not clear at this point if a ban will take hold in the U.S. or if any restrictions will be placed on the swaps in conjunction with a European proposal. President Barack Obama's regulatory overhaul is currently going through Congress. The proposal would give regulators better means to react and control speculative trading.