Learn more about our policy experts.

Media Contacts

Angela Bradbery, Director of Communications
w. (202) 588-7741
c. (202) 503-6768
abradbery@citizen.org, Twitter

Don Owens, Deputy Director of Communications
w. (202) 588-7767
dowens@citizen.org

Karilyn Gower, Press Officer
w. (202) 588-7779
kgower@citizen.org

David Rosen, Press Officer, Regulatory Affairs
w. (202) 588-7742
drosen@citizen.org

Nicholas Florko, Communications Officer, Global Trade Watch
w. (202) 454-5108
nflorko@citizen.org

Other Important Links

Press Release Database
Citizen Vox blog
Texas Vox blog
Consumer Law and Policy blog
Energy Vox blog
Eyes on Trade blog
Facebook/publiccitizen

Follow us on Twitter

 

May 14, 2012

Report: Rolling Back Dodd-Frank’s Derivatives Rules Would Ignore History’s Lessons

Report Details How Today’s Deregulatory Efforts for Derivatives Mirror Push of Late 1990s

Note: Amid the news coverage of JPMorgan Chase’s $2 billion loss in derivatives bets, Public Citizen is publishing this report to expound on the historical lessons of derivatives deregulation and the urgency to implement the rules called for in the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.

WASHINGTON, D.C. – A new Public Citizen report details how deregulating the financial derivatives market contributed to the financial crash and warns lawmakers – who are considering deregulating the derivatives market again – about the consequences of doing so.

The report, “Forgotten Lessons of Deregulation: Rolling Back Dodd-Frank’s Derivatives Rules Would Repeat a Mistake that Led to the Financial Crisis,” explains how America’s top financial policymakers deregulated the financial derivatives market in the 1990s and provides a detailed account of how deregulation led to the ensuing housing bubble, financial crisis and Great Recession.

It comes as members of Congress have introduced nine bills that would weaken the derivatives provisions of the Dodd-FrankWall Street Reform and Consumer Protection Act of 2010.

All seven bills moving in the U.S. House of Representatives have been approved by committees, and three have passed the full House. Two bills that would exempt overseas transactions from Dodd-Frank’s derivatives provisions may be voted on as soon as Thursday in the House agriculture committee. Other bills would exempt trades by supposedly “small” players, reduce transparency requirements and strike down a provision to ban derivatives trading by federally insured banks. At least three other bills would impose impediments for agencies to promulgate rules concerning financial services in general. The bills are listed in the report’s appendix.

“Rolling back Dodd-Frank’s derivatives reforms would invite a new crisis even before we are done picking up the pieces from the disaster that prompted the reforms in the first place,” said Bartlett Naylor, financial policy advocate with Public Citizen’s Congress Watch division.

The push to provide regulation-free zones for derivatives is reminiscent of the 1990s, when many top policymakers argued that investors in derivatives markets were too sophisticated to need federal oversight. Those investors ended up using derivatives to take on risks so immense that they necessitated a massive, taxpayer-financed bailout to prevent a total collapse of the financial system. The crisis plunged the nation into a recession from which it has yet to recover.

As recounted in Public Citizen’s report, many of the policymakers behind the deregulation of derivatives in the 1990s have admitted they were wrong. These include former President Bill Clinton, former Federal Reserve Chairman Alan Greenspan and, with more nuance, two former Treasury secretaries. For instance, former Treasury Secretary Robert Rubin co-signed a letter in 1998 expressing “grave concerns” about an overture by the Commodity Futures Trading Commission to consider strengthening derivatives regulation. Rubin now claims he favored more stringent regulation at the time but that the financial services industry’s opposition was “insurmountable.”

But today, the industry once again is using its force to push for lenient treatment of derivatives.

“Deregulation was the cause of the recession. Better regulation is a prescription for a sustainable recovery,” said Taylor Lincoln, research director of Public Citizen’s Congress Watch division and author of the report. “Allowing derivatives to be traded in secret and without safeguards would ignore the lessons that the past two decades have taught.”

###

Public Citizen is a national, nonprofit consumer advocacy organization based in Washington, D.C. For more information, please visit www.citizen.org.

Copyright © 2016 Public Citizen. Some rights reserved. Non-commercial use of text and images in which Public Citizen holds the copyright is permitted, with attribution, under the terms and conditions of a Creative Commons License. This Web site is shared by Public Citizen Inc. and Public Citizen Foundation. Learn More about the distinction between these two components of Public Citizen.


Public Citizen, Inc. and Public Citizen Foundation

 

You can support the fight for greater government and corporate accountability through a donation to either Public Citizen, Inc., or Public Citizen Foundation, Inc.

Public Citizen lobbies Congress and federal agencies to advance Public Citizen’s mission of advancing government and corporate accountability. When you make a contribution to Public Citizen, you become a member of Public Citizen, showing your support and entitling you to benefits such as Public Citizen News. Contributions to Public Citizen are not tax-deductible.

Public Citizen Foundation focuses on research, public education, and litigation in support of our mission. By law, the Foundation can engage in only very limited lobbying. Contributions to Public Citizen Foundation are tax-deductible.