Rep. Maloney Asks Greenspan Why He Opposed Regulation of Derivatives as Former Fed Chair Admits Error

Press Release

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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