时间：2022-03-15 04:58:25
George Soros, the prominentfinancier, avoids using the financialcont rac t s known as de r i vat i v e s“because we don’t really understandhow they work.” Felix G. Rohatyn, theinvestment banker who saved NewYork from financial catastrophe inthe 1970s, described derivatives aspotential “hydrogen bombs.”
And Warren E. Buffett prescientlyobserved five years ago that derivativeswere “financial weapons of massdestruction, carrying dangers that,while now latent, are potentiallylethal.”
One prominent financial figure,however, has long thought otherwise.And his views held the greatest swayin debates about the regulation anduse of derivatives ― exotic contractsthat promised to protect investors fromlosses, thereby stimulating riskier practices that led to the financialcrisis. For more than a decade, theformer Federal Reserve ChairmanAlan Greenspan has fiercely objectedwhenever derivatives have come underscrutiny in Congress or on Wall Street.“What we have found over the yearsin the marketplace is that derivativeshave been an extraordinarily usefulvehicle to transfer risk from those whoshouldn’t be taking it to those whoare willing to and are capable of doingso,” Mr. Greenspan told the SenateBanking Committee in 2003. “We thinkit would be a mistake” to more deeplyregulate the contracts, he added.
Today, with the world caught in aneconomic tempest that Mr. Greenspanrecently described as “the type ofwrenching financial crisis that comesalong only once in a century,” his faithin derivatives remains unshaken.
The probl em i s not that thecontracts failed, he says. Rather, thepeople using them got greedy.
The derivatives market is $531trillion, up from $106 trillion in 2002and a relative pittance just two decadesago. Theoretically intended to limitrisk and ward off financial problems,the contracts instead have stokeduncertainty and actually spread riskamid doubts about how companiesvalue them.
I f Mr . Gr e enspan had a c t e ddifferently during his tenure as FederalReserve chairman from 1987 to 2006,many economists say, the currentcrisis might have been averted ormuted.
Over the years, Mr. Greenspanhelped enable an ambitious Americanexperiment in letting market forces runfree. Now, the nation is confronting theconsequences.
Throughout the 1990s, some arguedthat derivatives had become so vast,intertwined and inscrutable that theyrequired federal oversight to protectthe financial system. In meetings withfederal officials, celebrated appearanceson Capitol Hill and heavily attendedspeeches, Mr. Greenspan banked onthe good will of Wall Street to selfregulateas he fended off restrictions.
But whatever history ends upsaying about those decisions, Mr.
Greenspan’s legacy may ultimately reston a more deeply embedded and muchless scrutinized phenomenon: thespectacular boom and calamitous bustin derivatives trading.
Faith in the System
Some analysts say it is unfair toblame Mr. Greenspan because thecrisis is so sprawling. “The notionthat Greenspan could have generateda totally different outcome is na?ve,”said Robert E. Hall, an economist atthe conservative Hoover Institution, aresearch group at Stanford.
Mr. Greenspan declined requestsfor an interview. His spokeswomanreferred questions about his record tohis memoir, “The Age of Turbulence,” inwhich he outlines his beliefs.
“It seems superfluous to constraintrading in some of the newer derivativesand other innovative financial contractsof the past decade,” Mr. Greenspanwrites.
In his Georgetown speech, heentertained no talk of regulation,describing the financial turmoil asthe failure of Wall Street to behavehonorably.
“In a market system based ontrust, reputation has a significanteconomic value,” Mr. Greenspan toldthe audience. “I am therefore distressedat how far we have let concerns forreputation slip in recent years.”
As the long-serving chairman ofthe Fed, the nation’s most powerfuleconomic policy maker, Mr. Greenspanpreached the transcendent, wealthcreatingpowers of the market.
An examination of more than twodecades of Mr. Greenspan’s record onfinancial regulation and derivatives inparticular reveals the degree to whichhe tethered the health of the nation’seconomy to that faith.
As the nascent derivatives markettook hold in the early 1990s, and insubsequent years, critics denounced anabsence of rules forcing institutions todisclose their positions and set asidefunds as a reserve against bad bets.
Time and again, Mr. Greenspan ― arevered figure affectionately nicknamedthe Oracle ― proclaimed that riskscould be handled by the marketsthemselves.
“Proposals to bring even minimalistregulation were basically rebuffedby Greenspan and various peoplein the Treasury,” recalled Alan S.
Blinder, a former Federal Reserveboard member and an economistat Princeton University. “I think ofhim as consistently cheerleading onderivatives.”
Arthur Levitt Jr., a former chairmanof the Se cur i t i e s and ExchangeCommission, says Mr. Greenspano p p o s e s r e gul a t ing d e r i v a t i v e sbecause of a fundamental disdain forgovernment.
Mr. Levitt said that Mr. Greenspan’s authority and grasp of global financeconsistently persuaded less financiallysophisticated lawmakers to follow hislead.
Still, over a long stretch of time,some did pose questions. In 1992,Edward J. Markey, a Democrat fromMassachusetts who led the Housesubcommittee on telecommunicationsand finance, asked what was then theGeneral Accounting Office to studyderivatives risks.
Two years later, the office releasedits report, identifying “significant gapsand weaknesses” in the regulatoryoversight of derivatives.
“The sudden failure or abruptwithdrawal from trading of any of these
large U.S. dealers could cause liquidityproblems in the markets and could alsopose risks to others, including federallyinsured banks and the financial systemas a whole.” Charles A. Bowsher, headof the accounting office, said when hetestified before Mr. Markey’s committeein 1994.
In his testimony at the time, Mr.Greenspan was reassuring.
Mr . Gr e ens p an wa rne d tha tderivatives could amplify crises becausethey tied together the fortunes of manyseemingly independent institutions.
“The very efficiency that is involvedhere means that if a crisis were tooccur, that that crisis is transmitted ata far faster pace and with some greatervirulence,” he said.
But he cal led that possibi l i t y“extremely remote.”
La t e r tha t y e a r , Mr . Ma rke yintroduced a bill requiring greaterderivatives regulation. It never passed.
Resistance to WarningsIn 1997, the Commodity FuturesTrading Commission, a federal agencythat regulates options and futurestrading, began exploring derivativesregulation. The commission, then ledby a lawyer named Brooksley E. Born,invited comments about how best tooversee certain derivatives.
Ms. Born was concerned thatunfettered, opaque trading could“threaten our regulated markets or,indeed, our economy without anyfederal agency knowing about it,” shesaid in Congressional testimony. Shecalled for greater disclosure of tradesand reserves to cushion against losses.
Ms. Born’s views incited fierceopposition from Mr. Greenspan andRobert E. Rubin, the Treasury secretarythen. Mr. Greenspan warned thattoo many rules would damage WallStreet, prompting traders to take theirbusiness overseas.
Ms. Born declined to comment.
Mr. Rubin, now a senior executive atthe banking giant Citigroup, says thathe favored regulating derivatives ―particularly increasing potential lossreserves ― but that he saw no wayof doing so while he was running theTreasury.
Mr. Greenberger asserts that thepolitical climate would have beendifferent had Mr. Rubin called forregulation.
On June 5, 1998, Mr. Greenspan,
Mr. Rubin and Mr. Levitt called onCongress to prevent Ms. Born fromacting until more senior regulatorsdeveloped their own recommendations.
Mr. Levitt says he now regrets thatdecision.
Ms. Born soon gained a potentexample. In the fall of 1998, the hedgefund Long Term Capital Managementnearly collapsed, dragged down bydisastrous bets on, among other things,derivatives. More than a dozen bankspooled $3.6 billion for a private rescueto prevent the fund from slipping intobankruptcy and endangering otherfirms.
Despi te that event , Congressfroze the Commodity Futures TradingCommission’s regulatory authority forsix months. The following year, Ms.Born departed.
I n N o v emb e r 1 9 9 9 , s e n i o rregulators ― including Mr. Greenspanand Mr . Rubin ― r e commendedthat Congress permanently strip the
C.F.T.C. of regulatory authority overderivatives.
Mr . Gr e enspan, ac cording t olawmakers, then used his prestige tomake sure Congress followed through.“Alan was held in very high regard,”said Jim Leach, an Iowa Republicanwho led the House Banking andFinancial Services Committee at thetime. “You’ve got an area of judgmentin which members of Congress havenonexistent expertise.”
As the stock market roared forwardon the heels of a historic bull market,the dominant view was that the goodt imes largely stemmed f rom Mr .Greenspan’s steady hand at the Fed.
Mr. Greenspan’s credentials andconfidence reinforced his reputation― helping him to persuade Congressto repeal Depression-era laws thatseparated commercial and investmentbanking in order to reduce overall riskin the financial system.
In 2000, Mr. Harkin , a Democratfrom Iowa asked what might happenif Congress weakened the C.F.T.C.’sauthority.
Mr. Greenspan said that Wall Streetcould be trusted.Later that year, at a Congressionalhearing on the merger boom, he arguedthat Wall Street had tamed risk.The House overwhelmingly passedthe bill that kept derivatives clear ofC.F.T.C. oversight.
Pressing Forward
Still, savvy investors like Mr.
Buffett continued to raise alarms aboutderivatives, as he did in 2003, in hisannual letter to shareholders of hiscompany, Berkshire Hathaway.
“Large amounts of risk, particularlycredit risk, have become concentratedin the hands of relatively few derivativesdealers,” he wrote. “The troubles of onecould quickly infect the others.”
But business continued.
And when Mr. Greenspan began tohear of a housing bubble, he dismissedthe threat. Wall Street was usingderivatives, he said in a 2004 speech,to share risks with other firms.
Shared risk has since evolved froma source of comfort into a virus. As thehousing crisis grew and mortgages wentbad, derivatives actually magnified thedownturn.
The Wal l St reet debacle thatswallowed firms like Bear Stearns andLehman Brothers, and imperiled theinsurance giant American InternationalGroup, has been driven by the fact thatthey and their customers were linked toone another by derivatives.
In recent months, as the financialcrisis has gathered momentum, Mr.Greenspan’s public appearances havebecome less frequent.
His memoir was released in themiddle of 2007, as the disaster wasunfolding, and his book tour suddenlybecame a referendum on his policies.
When the paperback version cameout this year, Mr. Greenspan wrote anepilogue that offers a rebuttal of sorts.
“Risk management can neverachieve perfection,” he wrote. Thevillains, he wrote, were the bankerswhose self-interest he had once betupon.
No f e d e r a l int e r v ent i on wa smarshaled to try to stop them, but Mr.Greenspan has no regrets.
“Governments and central banks,”he wrote, “could not have altered thecourse of the boom.”■