Meanwhile, in testimony before the Senate Agricultural Committee, Federal Reserve Chairman Alan Greenspan urged Congress to quickly enact laws to exempt the $80 trillion over-the-counter derivatives market from government regulation, saying legal uncertainty over the instruments is posing unacceptable risks to the countrys financial system.

Mr. Greenspan warned that these markets, and the related profits and employment opportunities, will be lost to foreign jurisdictions that maintain the confidence of global investors without imposing so many regulatory constraints. I snipped this from Msn web site. I do not have time to link or put url in, but go to the home page(those who feel comfortable with this) and click on news under the days dow summary. It is the first story headed by the climb in the NASDAQ.

-- futureshock (gray@matter.think), February 10, 2000

Answers

Sorry for posting what may be a duplicate post. SYSOPS delete if this is true.

-- futureshock (gray@matter.think), February 10, 2000.

Allow me to translate:

"80 ttttttttrillllllion in derivatives grew like topsy because there was no controlling legal authority (thanks for the tip Gore). If you poke your nose in it now, it'll all come down and it will be your fault. Stand back. You can't help anything here, only make the mess worse. For your own good, for God's sake, don't go there......"

-- JIT (justintime@rightnow.net), February 10, 2000.

Once the debate reaches the level where Greenie asks the Gov not to step in, it's all but over. Since when does the Gov not step in? We went through this with the junk bonds in the 80s and look where it got us to have no regulation. Derivatives are the junk bonds of the new millennium and they will ruin us one way or the other. It's too late to reign them in. The debt dwarfs junk bond debts.

-- paul leblanc (bronyaur@gis.net), February 10, 2000.

It sounds like we need Saint Adolph to pull this Cart out of the Mud.

-- Preparation H ($&$&@$&$.&$), February 10, 2000.

I agree that if the full extent of exposure in Derivatives were to be made public that it probably would trigger a stampede for the exits and an inevitable collapse. It was a marvelous idea, like most of the ideas that the Economic technoweenies come up with, but nobody factored in greed. And incompetence. Now, with so many firms overextended, the only thing left is to maintain the fiction.

Maybe, just maybe they'll work out of it. Maybe it's just wishful thinking by desperate men holding terrible secrets.

-- chairborne commando (what-me-worry@armageddon.com), February 10, 2000.

This is from the Senate Agriculture Committee (or more precisely, the Senate Agriculture, Nutrition and Forestry Committee) site. It's just the opening statement by the committee's chair, Sen. Richard Lugar (D - Indiana), but it was an interesting intro:

Lugar Opening Statement - Hearing on Working Group Report on OTC Derivatives

...In late 1998, House Agriculture Committee Chairman Bob Smith and I wrote Treasury Secretary Rubin requesting that the President's Working Group study and make recommendations to Congress regarding these instruments. Our request came on the heels of an economically turbulent period, which witnessed a Russian default of its debts, the devaluing of the ruble and the near-collapse of Long-Term Capital Management Hedge Fund. In addition, the CFTC was making overtures through its concept release on over-the-counter derivatives that it may seek to unilaterally regulate these instruments. In requesting this report, we sought to bring certainty to these markets and to build a broad consensus on the government's role, if any, in regulating them.

I have long stated that one of my goals for Commodity Exchange Act reauthorization is to provide legal and regulatory certainty to the over-the-counter market. With its recommendations on the legal certainty of swaps, the Treasury Amendment and electronic trading, I am confident that this unanimous report will provide Congress with the guidance it needs for achieving this important goal...

Here's the text of Mr. Greenspan's testimony (from the Federal Reserve Board site): Testimony of Chairman Alan Greenspan: Over-the-counter derivatives, Before the Committee on Agriculture, Nutrition and Forestry, United States Senate, February 10, 2000

...OTC Derivatives The President's working group has considered whether regulation of OTC derivatives is necessary to achieve these public policy objectives of the CEA. In the case of financial OTC derivatives transactions between professional counterparties, the working group has agreed that such regulation is unnecessary and that such transactions should be excluded from coverage of the act. Importantly, the recommended exclusion would extend to those securities-based derivatives that currently are subject to the greatest legal risk from potential application of the CEA.

The rationale for this position is straightforward. OTC transactions in financial derivatives are not susceptible to--that is, easily influenced by--manipulation. The vast majority of contracts are settled in cash, based on a rate or price determined in a separate highly liquid market with a very large or virtually unlimited deliverable supply. Furthermore, prices established in OTC transactions do not serve a price-discovery function. Thus, even if the price of an OTC contract were somehow manipulated, the adverse effects on the economy would be quite limited. With respect to fraud and other unfair practices, the professional counterparties that use OTC derivatives simply do not require the protections that CEA provides for retail investors. If professional counterparties are victimized, they can obtain redress under the laws applicable to contracts generally...

Unless I misunderstand this, Mr. G seems to be saying, "The professionals who play with derivatives are big boys and girls and can work things out themselves."

On the other hand (Mr. G always has another hand):

...In the case of clearing systems for OTC derivatives, the working group concluded that government oversight is appropriate. Clearing tends to concentrate risks and responsibilities for risk management in a central party or clearinghouse. Consequently, the effectiveness of the clearinghouse's risk management is critical for the stability of the markets that it serves. Depending on the types of transactions cleared, such oversight might appropriately be conducted by the CFTC under the CEA. Alternatively, it might be conducted by the Securities and Exchange Commission, the Federal Reserve, the Office of the Comptroller of the Currency, or a foreign financial regulator that one of the U.S. regulators has determined satisfies appropriate standards. Provided such government oversight is in place, OTC transactions that would otherwise be excluded from the CEA should not fall within the ambit of the act because they are cleared. If market participants conclude that clearing would reduce counterparty risks in OTC transactions, concerns about legal risks associated with the potential application of the CEA should not stand in their way... "If the folks involved in clearinghouse activities want the govt's help, we should provide it."

Geez, this is like trying to swim through mud. Someone else want to take a shot at summarizing?

-- DeeEmBee (macbeth1@pacbell.net), February 10, 2000.

Clinton Admin modus operandi - don't ask, don't tell. Meanwhile, everyone's rogering each other on the poop deck. Same old same old.

-- Nathan (nospamwh@tsover.moc), February 10, 2000.

Yes yes...by all means don't regulate them now -- but be sure and bail their sorry asses out "LTCM-style" when the MFer's go down in flames.

-- (@ .), February 10, 2000.

Give-em some more rope, even if we have to plant more hemp to do it.

C

This is madness. "Please Please don't throw me into that briar patch, brer fox."

And GOD don't look at what we don't want you to see, darn it, Senator.

-- Chuck, a night driver (rienzoo@en.com), February 10, 2000.

G:"In the case of financial OTC derivatives transactions between professional counterparties, the working group has agreed that such regulation is unnecessary and that such transactions should be excluded from coverage of the act."

I'd like for some of that professional exclusionaries between me and my business relationships without the various taxing agencies insisting on their piece. ...sdb

-- S. David Bays (SDBAYS@prodigy.net), February 10, 2000.