And then:
Bankers complain that recent cases of companies that lost millions of dollars on soured derivatives deals have received widespread coverage, while stories about companies that made money on derivatives seldom get written.
And Reuters, the same day, gave us anonymous criticism:
A major U.S. report warning that trade in financial derivatives poses a dangerous threat to the international financial system is exaggerated, a senior European monetary source said.
The source, close to international banking regulators, told Reuters that the report’s proposals for tougher regulation of trade in derivatives would plug some supervisory loopholes but not all of them were feasible.
The Chicago Sun Times weighed in, again May 19, with the “defenders” of derivatives:
In response to a long-awaited federal government report on derivatives, leaders of Chicago’s futures markets warned against further regulation of the financial instruments.
‘We would rail against any additional regulation,’ said Jack Sandner, chairman of the Chicago Mercantile Exchange. ‘No one has made a case that there’s a catastrophe here.’
Perhaps he didn’t read the GAO report. And yet again, it is beyond misleading to present the opinions of industry executives and the research of the GAO as equally authoritative, as this piece does.
Some more false balance, this time from the WSJ, May 19 again:
A federal study calling for tighter controls on the derivatives market was sharply criticized by the securities and commercial banking industries, which said the proposals would increase costs and reduce the availability of such financial products.
The General Accounting Office, Congress’s investigative arm, formally released its long-awaited study yesterday, calling for formal regulation of securities dealers and insurance companies that deal in derivatives, as well as for improved disclosure and accounting treatment. The report says that gaps in financial regulation could lead to a system-wide problem—and perhaps a federally financed bailout—if a major dealer fails. And it says the Securities and Exchange Commission should demand that public corporations establish requirements for corporate audits.
‘We are convinced that any legislation having these effects will harm the American economy,’ six leading financial trade associations said in a joint statement. ‘Therefore, we strongly oppose such proposals.’
The Globe and Mail May 20 brought up charges of politicizing the issue, in a piece headlined “Derivatives Backlash Overdone” and based on rumor:
A call for broad regulation of the booming financial derivatives market by an arm of the U.S. Congress is a highly political document, not an objective academic study, the president of Swiss Bank Corp. (Canada) said yesterday.
‘We are informed that the original draft, when it was sent to the politicians who commissioned it, was rejected … they just said it’s not negative enough,’ Malcolm Basing said of a report released in Washington on Wednesday by the U.S. General Accounting Office.
‘That gives you a flavour of what is going on,’ Mr. Basing, a past chairman of the International Swap Dealers Association—the key derivatives trade association—told a conference on derivatives.
The Washington Post’s editorial page seems not to have read the actual report, because it is hard to see how a reasonable reader could emerge with the following conclusion:
Derivatives have come to symbolize everything that Washington finds spooky, incomprehensible and menacing about the financial markets. Congress, bruised by the costs of cleaning up the S&L fiasco, wonders uneasily whether the rapid growth of trading in derivatives will produce similar grief. At its request the General Accounting Office has published a report that is, on the whole, reassuring. It suggests some improvements in regulation but rings no alarm bells. As it says, derivatives serve a very useful purpose.
If this were the obvious reading of the report, the derivatives industry would hardly have been so up in arms about it.

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