Van Doren, Peter, Regulation
"The Dodd-Frank Act's Maginot Line: Clearinghouse Construction" by Mark J. Roe. March 2013. SSRN #2224305.
Clearinghouses have become a standard response to the failure of troubled financial institutions in 2008. Proponents argue that if the credit default swaps created by American International Group (AIG) had been cleared rather than traded over the counter, the clearinghouse would have paid the capital and collateral calls of the counterparties holding credit default swaps for debt securities backed by pools of mortgages. This would have eliminated the fire sale of such assets to raise capital and the resulting decrease in asset market value that was at the heart of the financial crisis and the bailout of AIG. This thinking has become conventional wisdom and is embodied in the Dodd-Frank Act of 2010.
Regulation was one of the first to criticize such thinking in an article by University of Houston finance professor Craig Pirrong ("The Clearinghouse Cure," Winter 2008-2009). …