WASHINGTON - The House Banking Committee has scheduled a hearing for Oct. 5 to investigate recent derivatives losses suffered by state and local governments and other major investors such as a large bank mutual fund.
The hearing, announced by committee chairman Henry B. Gonzalez, D-Tex., will include witnesses from the Government Finance Officers Association; Charles County, Md.; BankAmerica Corp.; and Odessa Junior College in Odessa, Tex.
"It is hard to ignore case after case of small towns and municipalities, colleges, state retirement boards, and even a local orchestra that have seen their derivatives investments drop in value, losses which have proven to be devastating," Gonzalez said in a written statement issued yesterday.
Next week's hearing will be preceded by another hearing on derivatives scheduled to be held today by the House Energy and Commerce Committee's telecommunications and finance subcommittee, which is investigating the use of derivatives by mutual funds and the investment practices of fund managers.
Gonzalez and Rep. Jim Leach of Iowa, the ranking Republican on the committee, have been outspoken on the need for legislation to regulate the use of derivatives, especially since recent losses in Charles County, where taxpayers will have to pick up the bill.
"Now that local taxpayers have been added to the long list of Wall Street mutual funds and private companies that have been burnt by derivatives, it is even more imperative that Congress pass legislation regulating the volatile and sometimes risky derivatives market," Gonzalez said in early September after learning that Charles County lost $1.3 million from investments in derivatives.
In addition to hearing from Charles County officials, the Banking Committee will hear from BankAmerica, which had to inject more than $50 million into two of its mutual funds to cover derivatives losses, and from the president of Odessa Junior College, which lost about $22 million on derivatives speculation.
"Despite propaganda from industry proponents, losses from risky derivatives investments are commonplace and cause much hardship," Gonzalez said. "I believe the stories the committee will hear at the Oct. 5 hearing will illustrate the dark side of the derivatives industry."