If the Long-Term episode proved anything, it is that the system of disclosure that has worked so well with regard to traditional securities has not been able to do the job with respect to derivative contracts. To put it plainly, investors have a pretty good idea about balance-sheet risks; they are completely befuddled with regard to derivative risks. Some of the reporting standards are being changed (over the opposition of both Greenspan and the banks), but gaping holes remain. As the use of derivatives grows, this deficiency will return to haunt us.
