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560 Notes to Chapter 3

13. Richard Syron, interview by FCIC, August 31, 2010.
14. Senate Lobbying Disclosure Act Database (www.senate.gov/legislative/Public_Disclosure/
LDA_reports.htm); figures on employees and PACs compiled by the Center for Responsive Politics from
Federal Elections Commission data.
15. Falcon, written testimony for the FCIC, April 9, 2010, p. 5.
16. James Lockhart, written testimony for the FCIC, Hearing on Subprime Lending and Securitiza-
tion and Government-Sponsored Enterprises (GSEs), day 3, session 2: Office of Federal Housing Enter-
prise Oversight, pp. 4–8, 17 (quotation).
17. Senator Mel Martinez, interview by FCIC, September 28, 2010.
18. June E. O’Neill, remarks before the Conference on Appraising Fannie Mae and Freddie Mac,
Washington, D.C., May 14, 1998, p. 8.
19. Federal Housing Finance Agency, Report to Congress, 2008 (2009), tables 3, 4, 12, and 13.
20. Lawrence Lindsey, interview by FCIC, September 20, 2010.
21. Jim Callahan, interview by FCIC, October 18, 2010.
22. Securities Industry and Financial Markets Association (SIFMA), US ABS Outstanding.
23. Scott Patterson, interview by FCIC, August 12, 2010.
24. Gillian Tett, Fool’s Gold: How the Bold Dream of a Small Tribe at J. P. Morgan Was Corrupted by
Wall Street Greed and Unleashed a Catastrophe (New York: Free Press, 2009), pp. 32–33, 49, 70, 115.
25. Emmanuel Derman, interview by FCIC, May 12, 2010.
26. Volcker, interview.
27. Vincent Reinhart, interview by FCIC, September 10, 2010.
28. Lindsey, interview.
29. A futures contract is a bilateral contract in which one party, the long position, is compensated if
the price or index or rate underlying the contract rises while the other party, the short position, is com-
pensated if it goes down. An options contract grants the right but not the obligation to purchase or sell a
commodity or financial instrument at a particular price in the future; the option holder derives a benefit
if the price moves in his or her favor. In a swaps contract, the two parties exchange streams of payments
based on different benchmarks.
30. Securities options are regulated by the SEC.
31. Commodity Futures Trading Commission, Exemption for Certain Swap Agreements, Final Rule,
Federal Registrar 58 (January 22, 1993): 5587.
32. Brooksley Born, chairperson, Commodity Futures Trading Commission, “Concerning the Over-
the-Counter Derivatives Market,” prepared testimony before the House Committee on Banking and Fi-
nancial Services, 105th Cong., 2nd sess., July 24, 1998.
33. GAO, “Financial Derivatives: Actions Needed to Protect the Financial System,” GGD-94-133 (Re-
port to Congressional Requesters), May 18, 1994.
34. Commodity Futures Trading Commission, “Division of Enforcement” (www.cftc.gov/anr/an-
renf98.htm).
35. “Joint Statement by Treasury Secretary Robert E. Rubin, Federal Reserve Board Chairman Alan
Greenspan, and Securities and Exchange Commission Chairman Arthur Levitt,” Treasury Department
press release, May 7, 1998.
36. Fed Chairman Alan Greenspan, “The Regulation of OTC Derivatives,” prepared testimony before
the House Committee on Banking and Financial Services, 105th Cong., 2nd sess., July 24, 1998.
37. GAO, “Long-Term Capital Management: Regulators Need to Focus Greater Attention on Systemic
Risk,” GAO/GGD-00-3 (Report to Congressional Requesters), October 1999, pp. 7, 18, 39–40. The no-
tional amount of OTC derivatives contracts is a standard measure used in reporting the outstanding vol-
ume of such contracts. Its calculation is based on the value of the underlying instrument, commodity,
index, or rate that the swap is based on. It therefore may be of limited use in measuring the potential ex-
posure of the parties to the contracts. For example, an interest rate swap based on changes in interest rate
on a $100 million loan would likely involve only a small percentage of the $100 million notional amount.
On the other hand, price changes on an oil swap based on $100 million worth of oil could be even more
than the notional amount, depending on the volatility in oil prices. For credit default swaps, which are
discussed in more detail later in this volume, the notional amount is usually a close measure of the poten-
tial financial exposure of the issuer or seller of the swap.