Hearing of the House Financial Services Committee - Systemic Risk and the Financial Markets
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REP. STEPHEN LYNCH: Thank you, Mr. Chairman. Mr. Chairman, I appreciate your holding this hearing, and I want to thank the ranking member as well. I want to thank the secretary and the chairman for appearing before us and helping the committee with its work.
I want to go back to a point that was raised earlier, Mr. Secretary, in your response to Ms. Maloney. And also I think, Mr. Chairman, you address it at page three of your remarks. And basically my question is this. A lot of the lack of confidence, I think, in some aspects of our market come from the complexity and the opaqueness of some of these derivatives. You know, we've actually gone back and tried to drill down into the models on which some of these derivatives are actually based. And in some cases they probably stretch from myself to Mr. Hensarling down there.
And I'm just wondering, is there anything in your proposed reforms that might get at this issue? I mean, some of these derivatives, I have to admit, it's just very, very tough to value them or marking them to book, as some of my friends in the industry have described it, these credit default swaps that are a huge, huge part of the market out there, these collateral debt obligations, the failure of these risk and recovery models to really predict or to ascertain the value of these things.
I honestly -- they are so complex, I honestly believe if we adopted a simpler rule that said an investor had to understand these things before they bought them, that this whole market would come to a screeching halt. I honestly believe that. And I'm only half-joking.
But is there anything that you propose that would get at that opaqueness and, I guess, lack of transparency and complexity, something that would allow investors to have more confidence? I mean, in some of these cases we can't -- in these synthetic CDOs, we don't even know who the actual ownership -- you know, where the ownership lies. So it's just very, very tough for an investor, especially in difficult times, to have confidence in their investment when they can't really determine that on their own.
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