In 2008, we experienced the worse financial crisis in United States in the past 50 years. Millions of people lost their jobs, houses and savings. OTC (over-the-counter) derivative is the centerpiece of the financial crisis.

OTC derivative market is described as a dark market where deals are negotiated and traded privately between two parties, not through an open exchange. This market is completely unregulated after years of deregulation movements. There is no reporting requirement to inform regulators of deals and their terms, let alone reverse requirement to set aside money for bad bets.

Derivative market size is about $28 trillion by 1997. It exploded with no regulation oversight to $684 trillion in outstanding notional value in June 2008 at its peak according to the Bank for International Settlements.

The recent financial crisis shows that US regulators led by Alan Greenspan, Robert Rubin and Lawrence Summers mistakenly overlooked the systemic risk in this market and naively believed that regulations are not needed, as market will take care of itself.

In his recent media interview, Former President Bill Clinton said his Treasury Secretaries Robert Rubin and Lawrence Summers gave him wrong advices on regulating derivatives when he was in office. “I think they were wrong and I think I was wrong to take” their advice, Clinton said on ABC's “This Week” program in April 2010.

Alan Greenspan also admitted in a public hearing that there is a flaw on his free market ideology after the recent finance crisis.

We must learn from this painful and expensive mistake, and take needed actions to avoid similar financial catastrophes from happening again. Below are my suggestions on financial regulation reforms.

Regulate the derivative market - introduce reporting requirement, reserve requirement and require trading in an open exchange

1. Re-exam the Financial Advisory Board to the President – Is it dominated by a few people with similar ideology? Is it appropriate to include former business executives who are basically pro business and against regulations?
2. Re-exam inappropriate influence of campaign contribution on financial regulatory decisions
3. Re-exam inappropriate influence of lobbyists on financial regulatory decisions

Regulatory oversight of the derivative market is urgently needed to protect the interest of the general Americans. I urge the US Government to seriously examine needed financial regulatory reforms and implement them as early as possible in order to protect the rights of the general public.

Brooksley Born has been advocating for regulatory oversight of the derivative market since 1998. In closing, I want to quote her comments after the recent financial crisis – “I think we have to close the regulatory gap…. We cannot afford as a society to go forward with an enormous unregulated market that poses this kind of danger because it'll happen again if we don't take the appropriate steps.”