July 31, 2007 (LPAC)--At a hearing of the Senate Committee on Banking, Housing, and Urban Affairs on Tuesday featuring Christopher Cox, chair of the U.S. Securities and Exchange Commission (SEC), Senator Reed (D-RI) provided a minor touch of reality, in contrast to other members of the committee who continued to deny the reality that the financial collapse has already occurred. But what can you expect of a committee chaired by one of Felix Rohatyn's best buddies in the Congress, Christopher Dodd (D-CT), and which also includes Chuck Schumer, a big defender of hedge funds against any taxation by the U.S. government?

In stark contrast to a predominantly useless discussion about "vigorous enforcement of the securities laws," "the SEC's record of accomplishment", and "meeting the emerging challenges of the modern securities markets in the rapidly globalizing securities market place," etc., Senator Reed wrote, "There is a growing concern that systemic risk may be creeping into our financial markets." "The proliferation of products, such as CDOs, that have not been tested in market downturns; the accumulation of large pools of capital in unregulated, highly leveraged, hedge funds; and accounting rules that do not promote transparency in financial reporting seem to have created a potential for problems that could spill over from the financial markets to the general economy."

In his questions to Cox, Reed referenced aspects of the catastrophe that other members made no mention of, such as the subprime mortgage securities markets, collateralized debt obligations, rating agencies, tightening liquidity, rising interest rates, and huge private equity and hedge funds. Cox responded defensively, saying that the SEC is not primarily a subprime mortgage regulator, that it is "learning" about what is happening in the global financial system, and that hedge funds are essentially a black box.