Very risky business - derivatives - Cover Story

Washington Monthly, Oct, 1994 by Byron L. Dorgan

The classic purpose of deposit insurance, one of the enduring legacies of the New Deal, is to encourage saving and create a pool of capital to build homes and businesses and jobs. Deposit insurance is not supposed to underwrite airy speculation on Wall Street, and my bill will stop that.

Banks will argue that derivatives are good since they hedge risks they take by loaning money to real people. But my proposal would not affect traditional, conservative forms of hedging. And banks, so long as they created pools of betting money outside their federally insured deposits, could gamble to their hearts' content. But not with our money.