President's Working Group Recommends Exempting $80 Trillion Derivatives Market from Regulation

The President’s Working Group on Financial Markets issues a unanimous report recommending that over-the-counter derivatives be explicitly exempted from federal regulation, directly repudiating CFTC Chair Brooksley Born’s 1998 warnings about systemic risk. The report is signed by Treasury Secretary Lawrence Summers, former Treasury Secretary Robert Rubin (now at Citigroup), Federal Reserve Chairman Alan Greenspan, SEC Chairman Arthur Levitt, and CFTC Chairman Bill Rainer (Born’s successor).

The Working Group argues that “sophisticated financial institutions” engaged in derivatives trading do not require regulatory oversight and that market discipline is sufficient to prevent excessive risk-taking. This position ignores Born’s detailed analysis showing how interconnected derivatives exposures could trigger cascading failures across the financial system. The report explicitly recommends exempting the $80 trillion over-the-counter derivatives market from the Commodity Futures Trading Commission’s jurisdiction.

This unanimous regulatory consensus among the nation’s top financial officials represents the complete capture of financial oversight by Wall Street ideology. Within 13 months, Congress would implement these recommendations through the Commodity Futures Modernization Act of 2000, which banned regulation of derivatives and included the “Enron loophole” exempting energy derivatives from oversight. The Working Group’s recommendations would enable the explosive growth of unregulated credit default swaps and other exotic derivatives that would collapse the financial system in 2008, validating every warning that Born had made and regulators had systematically suppressed.