In a separate piece the same day, Dow Jones informed us:
Securities & Exchange Commission Chairman Arthur Levitt said that additional regulation of derivatives is not necessary ‘at this point.’
In response to reporters’ questions on today’s release of the General Accounting Office study of derivatives, Levitt said, ‘I’m not prepared to go out and call for more government regulation today.’ Levitt was speaking at a Investment Company Institute conference here.
And Levitt wasn’t the only government official making the round of industry conferences. Here is Dow Jones the following day:
Treasury Secretary Lloyd Bentsen said the federal government must not be ‘heavy-handed’ in dealing with derivatives.
‘The attention focused on these issues by appropriate committees of Congress and the GAO can also be constructive. However, I believe we need to be careful about interfering in markets in too heavy-handed a way.’
Bentsen’s remarks were contained in text of a speech he is giving before a National Association of Securities Dealers conference here.
Where was the press in all of this? Generally abdicating its imperative to shape the story—to sift through disparate pieces of information and put them in their places—and employing instead a false evenhandedness.
Let us explain.
Some articles merely summarized the report, avoiding the issue of significance entirely. But often reporters brought in opposing voices. That is standard, of course, and not a problem in and of itself. The problem is that reporters seemed at a loss over what weight to give opposition to the report. The result was that they gave it equal time—or more. And so the GAO, which had spent two years making itself an expert on derivatives, became just one voice among many, only to be gradually shouted down by a persistent opposition.
In reality, the GAO was the authority here, and unlike many of its opponents, didn’t have a horse in the race. Some opponents of the bill called the document politically biased in an effort to discredit it. But the problem with that accusation, which seems to have been aimed at Democrats, a few of whose members were at the forefront of the call for legislative action, is that—while solutions may have differed across party lines—concern over derivatives was not entirely limited to one party.
Besides, the GAO has earned considerable credibility over the years. Despite years of excessive government secrecy, they are one of the few government sources we can still count on for real information.
Nonetheless, here is the WSJ May 18, 1994:
The GAO report drops into a seething pool of vested interests, including regulators, legislators and dealers, all of whom have already offered their own, sometimes conflicting answers to three basic questions: What are derivatives? How risky are they? And what, if anything, should be done to regulate them?
There is far too little weighting of the various parties here. It is just plain wrong to equate all these “vested interests.” As if the Congress and private industry are two equivalent, equally self-serving parties. Even equating the industry and regulators is too simple, although the two groups were way too intertwined.
Manifesting that unhealthy connection, the industry and regulators continued to hammer away at the GAO. Here is Dow Jones, May 19:
Yesterday, the GAO released a long-awaited study of derivatives, which drew strong criticism from industry representatives. Market participants and regulators questioned the underlying premise of the report, which assumes that the increasingly close linkage among various financial markets, including derivatives, threatens widespread bank losses in the event of one failure.
Yet the banking system has withstood an assortment of crises in recent years, noted Steven Hellinger, director of research for the New York State Banking Department.
On May 19, the AP presented the problem as one of public perception:
Many fear these hybrid concoctions traded by banks and brokers could trigger a financial crisis, even though most are perfectly safe. But that’s not reassuring to those who remember how the banking industry slogged through the junk bond and commercial loan crisis, risking big sums of other people’s money.

Excellent work. I didn't know these reports existed. Thanks for unearthing them. Now, I wonder, what are these people who got it right 15 years ago saying now?
#1 Posted by edward ericson jr., CJR on Tue 10 Mar 2009 at 05:51 PM
i just started this story but right off the bat it seems the gao is constantly on point, how are they able to do such good work when it seems every one else in government cannot?
#2 Posted by ian, CJR on Tue 10 Mar 2009 at 09:57 PM
i just started this story but right off the bat it seems the gao is constantly on point, how are they able to do such good work when it seems every one else in government cannot?
#3 Posted by ian, CJR on Tue 10 Mar 2009 at 09:58 PM
my second thought, still on page one, is what other reports are collecting dust at gao?
#4 Posted by ian, CJR on Wed 11 Mar 2009 at 09:06 AM
Hell of a post, Elinore.
#5 Posted by 9brandon, CJR on Wed 11 Mar 2009 at 10:58 AM
Sure, it's all good to know. But this is hindsight. Why was no red flag raised by the Columbia Journalism Review when this report was initially published? With all the other media outlets? Excellence in journalism seems to be lumped in with sound bites and who has the loudest, sharpest bark. Not at all the one with wisdom and leadership in his mind and heart. There are also less and less voices out there. I do not know how this scenario will end, but am concerned about it..
#6 Posted by Maria, CJR on Mon 16 Mar 2009 at 11:10 AM
I checked the NYTimes archive for stories citing Buffet's derivatives-as-WMD remark. Other than reporting Greenspan's quick pooh-pooh, there was essentially nothing between the remark itself (March 2003) and the beginning of the MBS/derivatives crash (Fall 2007).
So, where was the NYTimes? Why did no reporter/columnist/feature writer pick up on a dramatic warning by America's most prestigious financier/investor for 3.5 years and ask -- hey, what the heck does he mean?
#7 Posted by David Lewis, CJR on Mon 16 Mar 2009 at 11:19 AM
Maria, I had it in November of 1999. Here is an alternet reprint from the spring of 2000. The Hartford Advocate didn't (and doesn't) have much reach though. Sorry.
http://www.alternet.org/story/658/one_bank_under_god/
#8 Posted by edward ericson jr., CJR on Mon 16 Mar 2009 at 12:41 PM
As the one who directed the 1994 and 1996 GAO reports, I can give you an earful about what is going on now. Perhaps Columbia could invite Alan Greemspan and me up for a symposium where we could continue our debate.
#9 Posted by James Bothwell, CJR on Wed 18 Mar 2009 at 02:51 PM
Mr. Bothwell, I read this story and your comment and would really appreciate corresponding with you.
friedlandjt@yahoo.com
#10 Posted by Joel Friedland, CJR on Thu 26 Mar 2009 at 04:25 PM
Every now and then I sit down to focus my efforts on continuing to see and chart just how far down the rabbit hole goes. I've given up tennis. This is my new pastime.
I awoke this morning with refreshed vigor to be rewarded with knowledge of Brooksley Born, knowledge which was new to me. More digging led me to the work of James Bothwell.
I, too, often wonder about where are the people with firsthand knowledge who counter mainstream speak at the time events are in the making rather than years later.
I've been putting together a list of names of go-to people who have the insight and experience for getting right to the chase, obviating the need to recognize the existence of even the least-tainted mainstream voice. Born and Bothwell have been add to that list.
If there is a "red-pill" mailing list of any kind, please add me (esantoro AT waldenbags.com).
In these trying times, it is good to know that there are a hell of a lot of great Americans. These people are so busy doing the real work that it takes years to find out just who they are.
Thank you, James Bothwell, for the work you do.
#11 Posted by Ed Santoro, CJR on Sun 18 Oct 2009 at 03:01 PM
Ed,
For more from us on this, see our Audit Interview with James Bothwell from July.
#12 Posted by Ryan Chittum, CJR on Sun 18 Oct 2009 at 03:53 PM
Thanks, Ryan. Read it and filed it. Now I'm on to Russ Baker's "Family of Secrets." Nothing turns up in CJR search for "Russ Baker." We need to change that.
It's time for a new set of those Friendly Dictator Trading Cards, but this time it's not the usual suspects--no, sir!
-- Rock the Pequod
#13 Posted by Ed Santoro, CJR on Thu 29 Oct 2009 at 01:38 PM
When a 10% default in derivatives market is equal to the worlds GDP ...Houston we have a problem
#14 Posted by otcnuclear, CJR on Sun 6 Jun 2010 at 05:42 PM