WE'RE BROKE BUT IT'S OKE

The dust has yet to settle after the recent disastrous news on the economic front but that hasn't stopped the finger pointing. Candidates, members of congress and media pundits are in danger of putting each other's eyes out playing the blame game.

Democratic leaders in congress are quick to assert that the republicans are at fault for pushing for market deregulation ignoring that the trend toward loosening the restaints began with the Clinton administration and was not halted by a democratically led congress for the past two years. McCain points to a bill he co-sponsored in 2005 warning of the dire consequences of not reining in Fannie Mae and Freddie Mac that was killed in conference by the dems. He fails however to mention that he once referred to himself as "the great deregulator." Obama has avoided much of the culpability by virtue of having no record on the subject of market regulation or oversight. He has however put McCain on the defensive for opining that the "fundamentals" of the economy is strong.

In the long tradition of politicians locking the barn door after the livestock have fled, are now calling for more regulation and closer oversight. It shouldn't be a surprise that there will be a 9/11 type commission formed that will take a year or so to come up with recommendations providing cover for all the congressional and presidential candidates well through November.

There is little doubt that there needs to be some regulatory changes requiring greater transparency while maintaining the strength of a free market. The one area that has largely been overlooked and according to some high profile investment experts is a financial instrument known as derivatives.

Billionaire Warren Buffet calls derivatives "financial weapons of mass destruction" and refers to them as a "time bomb" and "a fools game". He has spoken often about their introduction making the regulation of margins a joke. This is important because margins, requiring a minimum percentage of capital to be put up by the buyer, is one of the only ways to restrain high risk investments.

There isn't even a consensus of what derivatives are. According to Business 2.0.com, derivatives are defined simply as a "financial security such as an option or future whose value is derived in part from the value and characteristics of another security, the underlying asset."

If that doesn't clear it up, you're not alone. Warren Buffet says he doesn't invest in derivatives because "I don't invest in something I don"t understand."

With all that said, the real problem is that for the most part, these investments, though huge, are basically unregulated and so secret that they are not even listed on the account balance sheets of investment houses like Merrill-Lynch and Bear-Sterns. Congress should take a look at outlawing such fanciful and dangerous intruments.

Will the market right itself? Most experts agree that there will be a period of adjustment but we will survive and in fact prosper. In the short term, 401k, IRA and other investments will suffer and those folks either retired or close to retirement will suffer. The worst thing that could happen however is to over react discouraging all risk taking and making credit unattainable even to those who are worthy.

The Edge