KEYC-TV reports about the hearings in Rep. Walz on Legislative Investigation Into Wall Street Meltdown.
From the Walz congressional office:
WALZ PARTICIPATES IN HEARING INVESTIGATING WALL STREET ABUSES
CALLS FOR BRINGING ‘CREDIT DERIVATIVES’ OUT OF THE SHADOWS AND INTO THE LIGHT OF DAY TO PREVENT FUTURE PROBLEMS(Washington, D.C.) – Today, Congressman Tim Walz questioned government officials and financial experts about exotic investment packages known as ‘credit derivatives’ during a Congressional hearing investigating Wall Street abuses. Specifically, the House Agriculture Committee hearing today examined the role credit derivatives played in this current financial crisis and what must be done to prevent future problems.
“Today’s hearing looked into Wall Street abuses involving credit derivatives and how these dangerously risky investment packages accelerated the financial meltdown that is now rocking our economy and ravaging the personal savings of millions of hard-working Americans,” said Walz. “Wall Street brokers and their defenders in Washington blocked efforts in the past to enhance transparency and oversight in this area. Now, the American tax payers who are bailing them out want answers. We must end this wild west mentality and bring these credit derivative transactions out of the shadows on Wall Street and into the light of day to make sure this never happens again.”
The House Agriculture Committee has oversight of the Commodity Futures Trading Commission, which has governed other types of derivatives. However, credit derivates –including the most common kind, credit default swaps - have gone largely unregulated, creating unknown and dangerous amounts of risk to our economy and American citizens. Credit derivatives are basically an insurance policy against a bad loan or bond; but they are also subject to speculation.
“Credit derivative transactions have become more and more like a poker game between a lot of players sitting around the table, not knowing what the chips are worth. No one is able to accurately assess the risk involved in betting,” said Walz. “Voluntary oversight hasn’t worked. The lack of transparency hasn’t worked. It is time for a change. It is time we give Wall Street operators concrete rules to play by.”
Walz continued, “I’m most interested in making sure this economic crisis is turned around as quickly as possible. Baby boomers are ready to retire and more kids than ever want to go to college, but they need the markets to stabilize so they can use the money they’ve saved to pay their bills. That’s why we need to get a handle on the abuses of Wall Street and rein in these rogue players.”
Credit derivatives allow players in financial markets to shift risk – risk in home mortgages, risk in commodities, etc -- to other operators without having to take full responsibility for that risk. The general idea of managing risk makes sense. But most experts now agree that these credit derivatives were way too complicated, opaque and risky.
“We’ve got to move our economy away from the Vegas casino mentality and back towards an atmosphere of responsible borrowing and lending. Today we heard testimony that unregulated credit derivates are a danger to the financial and economic health of the U.S. That’s why I’m working closely with Chairman Peterson and my colleagues on the House Agriculture Committee to increase oversight of Wall Street and make sure these financial players are given clear-cut rules that accompany the billions of dollars of tax payers’ money we are now spending to bail out their reckless decisions,” concluded Walz.
Attached is a witness list from today’s hearing [Download Full Committee Witness List October1.pdf here]. Click here to read today’s Washington Post article about credit derivatives.
We asked for and have gotten the witness statements. We'll be posting them as we read them.
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