Mr. Chairman, this is certainly an important topic and a timely one.  I know it will be an important subject for this committee in the coming months.

 Recent events in the financial markets have undoubtedly heightened the interest and the level of concern regarding over-the-counter derivatives.  And I believe these events have added some concrete facts to a debate whose profile was raised by the CFTC’s concept release issued last May.  We must heed the warnings and the lessons to be learned from the financial crisis that has devastated Asian economies and the near-collapse of the Long Term Capital Management fund.

 At the same time, financial regulators and we in Congress certainly must be careful not to overreact in a manner that throws a new element of uncertainty into markets that are extremely sensitive and reactive to the regulatory climate.  However, just as it is possible to overstate the case for greater regulation based on recent events in the markets, it is equally as possible to overstate the case against even taking up and considering critical issues regarding the regulation of over-the-counter derivatives.

 It is true that these transactions generally involve private parties who are capable of looking after themselves.  But there is no denying that derivatives transactions that turn sour have the potential for huge public consequences, including the impact on federally insured financial institutions, disruption of financial markets and ramifications in the broader economy.  For example, the New York Times yesterday reported that about a dozen very large financial institutions dealing in derivatives control about half the worldwide market.  On the one hand that means that most of the market is occupied by sophisticated firms with very substantial resources.  On the other hand, this fact points out how small – and perhaps relatively insular – is the group controlling the derivatives markets.  I think we all know how quickly the flu or any other contagion can spread among a small and closely confined group.

 I also would caution that regulatory decisions that accommodate the high-flown OTC derivatives market – many of whose transactions are highly speculative – may have negative consequences for market participants, such as farmers, who have a critical need for straightforward hedging through markets that are open, transparent, marked to the market daily and properly regulated.  There are lessons from the hedge-to-arrive debacle that we cannot ignore.

 I approach these issues with an open mind.  I look forward to today’s testimony.  And I certainly look forward to receiving the reports and recommendations from the President’s Working Group on Financial Markets.  Thank you, Mr. Chairman.