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In today’s hearing held by the House Oversight and Government Reform Committee, Rep. Carolyn Maloney asked former Federal Reserve Chairman Alan Greenspan about his longstanding opposition to the regulation of derivatives, and Greenspan conceded that at least one type of controversial derivatives -- credit default swaps -- should be regulated.
In 1999, Rep. Maloney spearheaded an unsuccessful effort in the House
Banking Committee to require regulation of energy derivatives – the very
instruments that Enron used to create artificial shortages, evade regulatory
prohibitions, and drive energy prices sky high, before the unprecedented Enron
collapse in 2001.
At the time, Greenspan opposed efforts to require regulation of energy
derivatives or even to require disclosure of information about trading in such
instruments, even after the Enron collapse. In a 2002 letter to Congress
opposing regulation of energy derivatives, Greenspan had written, “we do not
believe a public policy case exists to justify this government intervention.”
In an historic change of view, Greenspan today conceded “There was a hole
in the model” of his deregulatory approach and admitted to Maloney that he now
believes there should be regulation of credit default swaps, the derivatives
that brought down insurance giant AIG.
“We need a new approach to our financial markets,” commented Maloney
later. “We need to recognize that to protect the integrity of our markets, we
need regulators who anticipate problems and devise responsible, common-sense regulations.
That is going to be the fundamental challenge for the next Administration
and the next Congress.”
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