Ex-Bear Stearns Chief Splits With Wall Street, Endorses Regulating Derivatives

Ex-Bear Stearns Chief Splits With Wall Street, Endorses Regulating Derivatives

The former chief executive officer of failed investment bank Bear Stearns endorsed Congress's push to mandate federal re-regulation of derivatives.

Testifying Wednesday before the Financial Crisis Inquiry Commission, former Bear CEO Alan Schwartz said that moving derivatives onto clearinghouses and exchanges -- something under debate in the Senate -- would be a "very positive development," particularly for those wishing to accurately assess financial firms' balance sheets.

The vast majority of derivatives are traded over the counter, meaning they're essentially traded in the shadows between firms without government oversight or regulation. In fact, no one really has an accurage assessment of how big the market truly is.

In December, the House of Representatives passed a measure calling for the majority of these derivatives to be moved onto clearinghouses -- venues that act as a nexus for trades and require various safeguards to be in place -- and exchanges, which function much like a stock exchange.

The Senate's version of the bill passed out of the chamber's Banking and Agriculture committees, and is presently under consideration on the Senate floor.

While many on Wall Street are actively fighting to weaken the derivatives proposal, the endorsement from one of the former heads of what was once a top five investment firm could give reformers added ammunition.

Schwartz's former competitors -- those still standing, at least -- are vigorously fighting the proposals.

In March 2008, JPMorgan Chase acquired Bear Stearns in a sweetheart deal at the urging of the Treasury Department and Federal Reserve. The Fed's regional bank in New York, then led by current Treasury Secretary Timothy Geithner, provided the taxpayer-supported financing to get JPMorgan to agree to the deal.

Lehman Brothers failed six months later. Merrill Lynch was acquired by Bank of America. Goldman Sachs and Morgan Stanley converted from investment banks into bank-holding companies.

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