In contrast to this well-founded caution, Fed chief Greenspan was still singing the praises of unfettered derivative markets. On July 30, testifying before the Senate Committee on Agriculture, Nutrition, and Forestry, Greenspan declared that derivative traders “have managed credit risks quite effectively through careful evaluation of counterparties.” The words can only mean that, in Greenspan’s view, a Merrill or a Morgan was carefully scrutinizing clients such as Long-Term—a view that would soon become demonstrably false.
