Trading records suggest that in the panicked days when exotic derivatives were bringing the AIG to its knees, traders were using the same kinds of derivatives, called credit-default swaps, to profit from New Jersey's rising tide of red ink.
History: S.E.C. 2004 Ruling Let Banks Pile Up New Risk
How the SEC (And Media) Failed Abysmally: The Times a blow-by-blow account of how the SEC knuckled under to pressure from major investment banks and threw capital requirements out the window -- planting the seeds for the ongoing financial meltdown. An unanswered question, only briefly dealt with in the article, is this: where was the financial press?
CJR Audit asks that same question: "Where was this story years ago?" The answer is "right in front of us." After all, the Times article was based on the public record, including open SEC meetings that were not covered by the media.
April 2004 - Five SEC members met in a basement hearing room to consider an urgent plea by big investment banks. The unanimous decision, changing what was known as the net capital rule, was completed and published in The Federal Register a few months later. I-banks asked for exemption from regulations that limited the amount of debt they could take on. One commissioner questioned the staff about the consequences of the proposed exemption and was told this would be only available for the largest firms—those with assets greater than $5 billion. None of the major media outlets covered this 2004 Proceeding. Last Friday, SEC ended the 2004 program acknowledging that it had failed to anticipate the problems at Bear and other major investment banks. Discussion can now be heard on SEC and NYT Web sites.
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