Financial Devivitives: Actions Needed to Protect the Financial System

GAO Archives ^ | May 1994 | United States General Accounting Office

[tired&retired]

The linked report from the General Accounting Office in May 1994 outlines the actions needed to protect the US financial system from the risks of derivatives. It's a long report in pdf format, but well worth the reading. It shows that the GAO warned the Clinton Administration, the Secretary of the Treasury, Securities and Exchange Commission, Chairman of the Federal Reserve Board, Comptroller of Currency, and Chairman of the FDIC of the dangers of derivatives.

There is a chart on page 54 that shows most of the now troubled financial institutions exposure to derivative credit risk as a percentage of equity. Citicorp for example had a credit exposure of 1200% of shareholders equity in 1992.

Sorry, I can't cut and paste a pdf file, but thought this report was well worth the read as it shows that the Clinton Adm knew the dangers of derivatives and purposely took the regulations in the exact oposite direction of the GAO's reccomendations.

[MeneMeneTekelUpharsin]

It is THIS which will eventually bring down the financial system. Financial instruments invented out of thin air on a promise to pay when things don’t go your way. Well...someone is NOT going to pay and how can you make them?

[PGalt]

The supremacy of finance capital over all other forms of capital means the predominance of the rentier and of the financial oligarchy; it means that a small number of financially “powerful” states stand out among all the rest. The extent to which this process is going on may be judged from the statistics on emissions, i.e., the issue of all kinds of securities. - Vladimir Ilyich Lenin