Risk and Regulation
May: Over objections of other financial regulators, Born issues "concept release," questioning whether unregulated derivatives contracts should get government oversight like exchange-traded futures contracts do.
November: Congress passes law to dismantle Depression-era Glass-Steagall law, which had separated commercial and investment banking. The law does not give the Securities and Exchange Commission authority to regulate investment bank holding companies, which were trading heavily in unregulated derivatives contracts.
November: A President's Working Group report
on derivatives recommended no CFTC regulation, saying that it "would otherwise perpetuate legal uncertainty or impose unnecessary regulatory burdens and constraints upon the development of these markets in the United States."
June: Born leaves the CFTC, with no change in the regulation of derivatives.
December: Commodity Futures Modernization Act
passes. Championed by Sen. Phil Gramm (R-Tex.), the law bars the Securities and Exchange Commission, as well as the Commodity Futures Trading Commission, from issuing new regulations on unregulated derivatives.
April: The Securities and Exchange Commission creates a voluntary program of oversight for investment bank holding companies. It gives the SEC its first comprehensive look at the large trading positions the firms had in unregulated derivatives and mortgage-related securities.
September: The Federal Reserve Bank of New York holds discussions with derivatives dealers on creating a voluntary clearinghouse for unregulated derivatives trades.
September: Insurance giant AIG is seized by the federal government after it's forced to scramble for cash to use as collateral for $440 billion in credit default swaps it sold.
September: Lehman Brothers files for bankruptcy protection after other financial firms demand cash to protect their positions.
March: Bear Stearns is rescued by J.P. Morgan Chase and a $29 billion federal government loan after other financial firms question its stability and demand cash to protect their positions with the firm.