Today’s Washington Post gives us the inside story of how some regulators sought to put derivatives under and exchange. They met with resistance from other regulators.

It is all very entertaining, but at the end of the day, an organized derivatives exchange would not have prevented the crisis. If anything, it would have facilitated the use of derivatives to securitize more mortgages, and securitization was the main cause of the crisis. Counterparty risk in derivatives was simply not the main issue here.

The main appeal of the Post‘s story will be to people who want the narrative to be “regulators good, markets bad.” The problem is that the dots don’t connect. Organizing a derivatives exchange would not have curtailed securitization, low-down-payment lending, or hedging default swaps by short-selling financial institutions on their way down. If anything, it might have exacerbated those problems.