Chris Cox, American hero

As others have noted, one interestingly unexpected moment in today's bailout hearings came when SEC Chairman Chris Cox mentioned the lack of any over-the-counter-derivatives regulation/oversight/disclosure as a possible cause of some of our current problems.

OTC derivatives, such as the credit default swaps so much in the news lately, are contracts between financial institutions that aren't traded on any exchange. The International Swaps and Derivatives Association sets up various "protocols" and "master agreements" that standardize things a bit, but beyond that these markets are unregulated, untransparent free-for-alls. And whenever anybody suggests they shouldn't be, as Cox did today, ISDA issues a press release decrying such efforts "to treat privately negotiated contracts as securities."

After the Long-Term Capital Management debacle in 1998, Brooksley Born, then the chairman of the Commodity Futures Trading Commission--which regulates exchange-traded derivatives--campaigned for the authority to oversee the OTC kind as well, but was batted down by Congress and the Clinton Treasury Department. (I wrote about this a few days ago.) And on December 14, 2000, Phil Gramm, Jim Leach, Richard Lugar, Thomas Ewing and a few others introduced a Commodity Futures Modernization bill that formally banned the CFTC from regulating OTC derivatives. Its provisions were slipped into an appropriations bill in conference committee and passed the House and Senate the very next day. Lame-duck President Bill Clinton signed it into law six days later. And they say Paulson and Bernanke are trying to move too fast!

Anyway, I looked into the bill's history because I thought Cox might have voted for it, which would be embarrassing. But no: He was one of 60 House members who voted nay. In the Senate it passed by unanimous consent.