Paul Martin is a past master at floating progressive-sounding economic-policy balloons on the international stage. Two years ago, only the Canadian Finance Minister, among his counterparts, was talking about implementing a Tobin tax on the speculative capital flows that had devastated so much of the Asian economy. Last month, he made a splash in Prague by suggesting rich countries initiate faster and deeper debt relief for strapped Third World nations.

Martin was at it again at his press conference opening the G20 meeting of finance ministers and central-bank governors in the Sheraton Hotel Tuesday afternoon.

Of the protests Monday evening that had led the headlines that morning, Martin proudly displayed the right democratic attitude. "Protesting is an integral part of the process, and one we support," he said. "The aims of a number of protesters, whether it be here, or in Prague, or in Washington - these are views that we will be discussing at these meetings. In fact, many of the views are ones that a lot of us share."

On the question of transparency in international economic organizations like the G20, Martin said that it is "crucial," and bragged about his own meetings with non-governmental organizations over the summer.

And on globalization? "Globalization, if its benefits are limited only to the privileged few, is not going to work," Martin thundered. "There is no way to deal with globalization unless you confront the terrible problem of poverty."

Statements like these win him fans within the NGO community. But there is always a caveat. While he recognizes the increasing disparity between the globe's rich and poor, he says that's only because there isn't enough globalization. "One of the major problems of globalization is not so much the presence of globalization but the fact that vast segments of the world have not been allowed to participate in it." And that's where all the fine-sounding noises come to a screeching stop. It shows that while Martin recognizes there are problems, he still hasn't connected the dots that would lead him to question the premise that underscores the ideology of unfettered globalization.

"I think Martin may be one of the more open-minded finance ministers in the OECD," says Randall Dodd, an economist and director of the Washington, D.C.-based Derivatives Study Center. "Nevertheless he probably feels constrained by the circumstances to talk within what we call the Washington Consensus model: that export-led growth is the key to developing-country prosperity."

It's that model that is so obviously falling apart across the globe, as developing countries forced into the open-border economy and domestic austerity program find themselves slipping ever further behind - to the profit of the rich nations that imposed the program in the first place.

Dodd, who was in Montreal last weekend for an alternative economics teach-in at Concordia University, attended a conference of economists in Lima, Peru, last month and found, to his surprise, that Latin Americans are starting to reject the "consensus" imposed over the past two decades. "There are very severe problems in Peru, in Bolivia, in Ecuador, Chile and Brazil," Dodd notes. "Very sharp problems that, because they haven't been triggered in the same violent way as Mexico or the Asian crises, haven't attracted as much attention. With the decline in the stature of the IMF, they are also feeling some latitude in trying to deal with it."

In fact, the Latin American economists Dodd met are beginning to dust off the old import-substitution models that were shelved in the late 1970s. There's also talk of requiring global companies to produce locally in order to gain access to local markets.

It's a strategy, Dodd notes, that worked well for the strongest economies in Asia, such as South Korea, Taiwan and Japan.

Either way, says Dodd, "Something's going to give. The IMF advice over the last decade has always been to boost imports in order to put their current accounts back in surplus. We saw that in Mexico, East Asia, and on down the line. But not everyone can run a surplus; someone has to run a deficit." Developing countries are becoming increasingly frustrated that the free-trade prescription only seems to make their economies sicker, Dodd adds. "While rich countries like the U.S. are growing rapidly and becoming very prosperous, [developing countries] are being shouldered with the burden of servicing debt that goes back to the '70s, their financial sectors are being crippled, with their economies becoming even more depressed. And the Fund reacts to that with measures that call for greater austerity. So there is a very clear sense that the current arrangement does not allow them to catch up but pushes them further behind."

And for Paul Martin, despite his sympathetic nods at the persistent failures of the export-led ideology, there's still only one answer: more of the same.

Randall Dodd, Director of the Derivatives Study Center at the Economic Strategy Institute in Washington, DC

DSC Responds to the House Voting to Pass H.R. 4541

November 3, 2000

ESI PRESS RELEASE

Washington, DC: Today in the U.S. House of Representatives, Majority Leader Dick Armey brought H.R. 1451, the Commodity Exchange Modernization Act, to the floor for a vote under a procedure known as ‘marshal law’ in which bills can be considered under a suspension of House rules. Under suspension, the bill can receive no more than 40 minutes of debate, cannot be amended and must pass with a two-thirds majority.

This legislation will bring a dangerous degree of deregulation to derivatives and financial markets. The bill does nothing to improve market transparency, but instead it will actually reduce current levels of transparency in exchange traded derivatives. The bill does nothing to recognize the increasing role of interest rate swaps as the benchmark for interest rates in U.S. capital markets, but instead it denies that swaps play any price discovery role in the economy. The bill will leave a large share of the derivatives transactions -- including derivatives transactions involving oil, gas and securities -- entirely excluded from any federal oversight, supervision or regulation of the Commodity Futures Trading Commission. In addition, the bill will substantially curtail the ability of the Commodity Futures Trading Commission to detect and deter market manipulation as well as police against fraud in futures and options markets.

In contrast to the decision of the House today, the Derivatives Study Center announces that it will commence a new program designed to bring more information and scrutiny to derivatives markets. The Center will issue a regular report describing new developments in financial markets and analyzing any problems -- whether they be market disruption, price distortion, manipulation, fraud or operational breakdown -- that emerge in relation to the deregulation of derivatives markets. The report, called “Market Risk Monitor,” will be useful for Members of Congress as well as the American public to track the effects of this important legislation. It will be e-published but also available by fax.

FOX SPECIAL REPORT WITH BRIT HUME

September 19, 2000

FOX NEWS NETWORK

Transcript # 091901cb.254

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

BRIT HUME, HOST: Next on SPECIAL REPORT, Oprah Winfrey gives George W. the same gentle treatment she gave Al Gore and gets a kiss in the process.

Plus, we'll talk to Michael Barone about the drift toward Gore in the battleground states.

First, though, the other headlines from New York.

(FOX NEWS)

HUME: Welcome to Washington. I'm Brit Hume.

George W. Bush went on "The Oprah Winfrey Show," and the question beforehand was whether she would treat him as gently as she did Al Gore. She did. And by the time it was all over, there seemed to be a new question: Can a public display of affection, such as Al Gore's smooch with Tipper at the Democratic convention, turn a campaign around?

Carl Cameron reports on Bush's turn on "Oprah."

(BEGIN VIDEOTAPE)

CARL CAMERON, FOX CORRESPONDENT (voice-over): George W. Bush was courting Oprah's 22-million mostly-female viewers, and unlike the vice president during his appearance last week, Bush planted one on his hostess.

(BEGIN VIDEO CLIP, "THE OPRAH WINFREY SHOW")

OPRAH WINFREY, HOST: Thanks for the kiss. Let's talk about...

GOV. GEORGE W. BUSH (R-TX), PRESIDENTIAL NOMINEE: My pleasure.

CAMERON: Aides say, for Bush's effort to woo women voters, the hour- long exchange was a home run.

(BEGIN VIDEO CLIP, "THE OPRAH WINFREY SHOW")

WINFREY: Do you like W. as a nickname?

BUSH: Sure.

WINFREY: I heard your mom doesn't like it. But, anyway, it sounds good to say it, you know.

BUSH: Well...

WINFREY: W. W. W. is in the house.

CAMERON: Typical of Oprah, the interview was mostly warm and fuzzy, more about personality than policy. But, when a young, black woman suggested that Bush's proposals would not affect her, Bush pitched his tax cut and got a warm reception.

(BEGIN VIDEO CLIP, "THE OPRAH WINFREY SHOW")

BUSH: But if you're working and are -- are paying taxes, because of the surplus, I think you ought to be able to put more money in your pocket. That's what I believe.

CAMERON: He touted his record as governor of Texas, depicting himself as a proven leader, his own man.

(BEGIN VIDEO CLIP, "THE OPRAH WINFREY SHOW")

CALLER: What is the public's largest misconception of you?

BUSH: Probably I'm running on my daddy's name, that -- that, you know, if my name were George Jones, I'd be a country and western singer. No, I mean...

CAMERON: Noting his campaign's pressure on his own kids, Bush admitted that he worries about the toll that rumor and gossip can take and that, at times, being his father's son has been tough.

(BEGIN VIDEO CLIP, "THE OPRAH WINFREY SHOW")

BUSH: I have been the son of a president and the presidential candidate, and it's not a pleasant experience.

CAMERON: Bush repeatedly showed a good-natured wit seldom seen in the current battle with Gore, for instance when Oprah demanded detailed examples of when Bush has sought forgiveness.

(BEGIN VIDEO CLIP, "THE OPRAH WINFREY SHOW")

BUSH: When my heart turns dark, when I am jealous, or when I am spiteful.

WINFREY: I'm looking for specifics.

BUSH: I know you are, but I'm running for president.

AUDIENCE MEMBER: Do you agree with the Democratic policy of bombing and sanctions that...

CAMERON: An audience member briefly interrupted the show.

(BEGIN VIDEO CLIP, "THE OPRAH WINFREY SHOW")

WINFREY: Fifteen years of shows, never had a heckler. You come on, I get a heckler.

BUSH: Glad to break a record somehow, you know.

CAMERON: The show was full of the kind of introspection that Bush says he hates. After watching the video of his daughters, he wiped away a tear. And, later, he described his decision to give up drinking 14 years ago.

(BEGIN VIDEO CLIP, "THE OPRAH WINFREY SHOW")

BUSH: Alcohol was beginning to compete for my affections, compete for my affections for my wife and my family. It was beginning to crowd out my energy, and I decided to quit, and it's the -- one of the best decisions I ever made.

CAMERON (on camera): Bush has decided to much more carefully control his appearances. Traveling reporters have been told not to expect more, if any, news conferences and that access to the governor will be strictly limited to highly choreographed events. It's all part of the Bush camp's retooling effort and a recognition that there's no more room for mistakes that might knock Bush off message.

In Chicago, Carl Cameron, Fox News.

HUME: Well, you saw it in Carl's report, but the question remains: Is a kiss just a kiss? Steve Brown addresses that question with a little context.

(BEGIN VIDEOTAPE)

STEVE BROWN, FOX CORRESPONDENT (voice-over): Campaign observers suggest Al Gore's passionate pucker with his wife at the Democratic National Convention either was or marked the turnaround of his presidential campaign.

Now there is a new development on the kissing issue: Oprah. The queen of talk has hosted two get-to-know-the-major-candidate shows. Gore went first, but, when the vice president came on, he gave Oprah a one-armed hug and an air kiss.

(BEGIN VIDEO CLIP, "THE OPRAH WINFREY SHOW")

WINFREY: OK. No kiss? I was hoping for something like...

BROWN: Today was the Texas governor's turn.

(BEGIN VIDEO CLIP, "THE OPRAH WINFREY SHOW")

WINFREY: George W.

BROWN: In slow mo, you can see Bush delivering the goods to Winfrey - - giving her a two-armed hug and a smooch on the cheek -- and appearing to say, "I'm trying to win." The queen of talk was nearly speechless.

(BEGIN VIDEO CLIP, "THE OPRAH WINFREY SHOW")

WINFREY: Thank you. Thanks for the kiss. Let's talk about...

BUSH: My pleasure.

BROWN (on camera): Both Bush and Gore were only too happy to do Oprah's show because both want to woo women voters.

Now, with Gore's appearance, it seemed that the women were the ones who liked the touchy-feely format of the show. Men didn't. But, with Bush's appearance, it was the women in the audience who seemed to be saying that the substance of the show didn't amount to a hill of beans.

AUDIENCE MEMBER #1: I would have liked to hear him talk more about his new plan for prescription drugs, but...

BROWN: So you were looking for some more substance?

AUDIENCE MEMBER #2: I was, yes, and I think George has it. He just doesn't -- wasn't allowed to give out a lot because of what Oprah had programmed for him.

BROWN (voice-over): But you never know. If Bush wins on election

In Chicago, Steve Brown, Fox News.

HUME: Joe Lieberman may have been one of the drug and insurance from listening to the man who chose Lieberman as his running mate. Al Gore is emerging on the campaign trail as the absolute scourge of both industries, and he was on their case this day in Los Angeles.

Correspondent Jim Angle is with him.

(BEGIN VIDEOTAPE)

JIM ANGLE, FOX CORRESPONDENT (voice-over): In another attack on business today, Gore accused health-care providers and insurers of strip mining people's personal lives for profit, as he put it, by selling confidential medical information to marketers. Gore proposes new laws to make sure no one discloses your medical information.

AL GORE, VICE PRESIDENT OF THE UNITED STATES: From your employer to your health plan to the hospital that you stay in to the provider who treats you, everyone is required by law to keep that information private.

ANGLE: And would be penalized under law if they don't, penalties Gore would increase. That may be an annoyance, but a more serious problem is using against you any genetic information showing a predisposition for a particular disease, which Gore says he would also ban.

GORE: I will fight to make it illegal to use genetic information to discriminate against someone seeking a job, a promotion, or health insurance. It ought to be against the law.

ANGLE: It is already illegal to use genetic information to deny health coverage. One man did question Gore's approach, suggesting a series of new regulations would be expensive and complicate legitimate sharing of information.

Meanwhile, the Gore campaign leapt on something Governor Bush said to Paula Zahn of Fox News. Asked how he would respond to an economic downturn, he said he'd accelerate his tax cut.

BUSH: See, I come from the school of thought that, during a recession, it's important to give people more money back faster. Now that may cause us to run a short-term deficit, but the fundamental question is: How do you -- how do you cause the economy to grow?

ANGLE: The Gore campaign said Bush made his priorities clear that he wealthy. But, in his FOX interview, Bush accused Gore of having said he would raise taxes in a recession, something economists say would be exactly the wrong thing to do.

RANDALL DODD, ECONOMIC STRATEGY INSTITUTE: I think that would be a very destructive thing to do, in general, because it would both -- dampen the economy at a time when it needs stimulus.

ANGLE: In fact, last December, Gore said he would, quote, "not support tax increases as long we're in surplus, so long as we don't have a deep economic crisis of some kind that changes the circumstances," suggesting he would consider tax increases during a recession.

Now what Bush said was controversial because he contemplated deficits once again, though his policy prescription for an economic slowdown was -- is in line with what previous Democratic presidents have done, that is to lower taxes to stimulate the economy.

In fact, that's something that President -- that Bill Clinton before he was president and as he took office as president also proposed back in 1992 but did not do -- Brit.

HUME: Jim Angle, thanks very much.

Reform Party presidential candidate Pat Buchanan spoke Monday night at Bob Jones University in South Carolina in an effort to kickstart his campaign.

It's a stop that momentarily seemed to derail George W. Bush's campaign during the primaries because the university is known for its fundamentalist religious views and some statements by officials there have been described as anti-Catholic.

to attacks in the national media. He also criticized Hillary Clinton for marching in the Gay Pride Parade in New York City and said the promotion of the gay lifestyle is contributing to moral decadence in society.

(BEGIN VIDEO CLIP)

PAT BUCHANAN (REF), PRESIDENTIAL CANDIDATE: This new issue of so- called homosexual rights -- you know, in literature, they used to call it "the love that dare not speak its name." But if you watch the talk shows all over America, it is the love that will not shut up.

HUME: Coming up next, the findings of a report about corruption in Russia and the alleged link to Al Gore.

Be right back.

(COMMERCIAL BREAK)

HUME: In March, House Speaker Dennis Hastert appointed a panel to look at the relationship between the U.S. and Russia during the years of the Clinton and Yeltsin administrations. The report is now ready. The product, to be sure, of a Republican committee. Still, its contents could complicate life for Al Gore.

As Fox News' Rita Cosby tells us, the report claims the vice president turned his back on claims of improprieties.

(BEGIN VIDEOTAPE)

RITA COSBY, FOX CORRESPONDENT (voice-over): The 209-page report obtained by FOX News is entitled "Russia's Road to Corruption," and it blasts Vice President Al Gore, saying he purposely disregarded reports of vast corruption in the Russian government for years.

REP. CHRISTOPHER COX (R), CALIFORNIA: The vice president's turning a blind eye to corruption, ignoring inconvenient intelligence information had a chilling effect on reporting within the intelligence community.

COSBY: GOP Congressman Chris Cox chaired an advisory group consisting of 12 Republicans and no Democrats. Their report says, quote, "The Clinton administration and Gore personally contributed not only to the spread of corruption but to Russia's failure to overcome it."

It says intelligence officials told Gore and others in the administration about the corruption as far back as 1995. Intelligence officials also confirm this to Fox News, with one senior official saying it was as early as 1994.

During that time, Gore, the administration's point person on Russian affairs, was a co-chairman of a U.S.-Russian commission with former Russian prime minister Victor Chernomyrdin, who Western intelligence agencies have long suspected as having accepted bribes and manipulating gas stocks for his own benefit.

commission was merely a political stage for Gore.

COX: I think the Gore-Chernomyrdin commission was much more a photo op than it was anything of substance.

COSBY: Democratic members of Congress sharply criticize the report, saying it was pushed by the Republican National Committee.

REP. SAM GEJDENSON (D), CONNECTICUT: This is an outrageous attempt to take RNC documents and make them look as if it's some congressional report.

COSBY: Gore's campaign spokesman also said it was politically motivated.

CHRIS LEHANE, GORE CAMPAIGN SPOKESMAN: There's no question that this is a taxpayer-funded negative research operation that the Republicans have engaged in.

COSBY (on camera): The report will be presented to the speaker of the situation in Russia and U.S.-Russia relations, which polls show have deteriorated significantly since 1993.

In Washington, Rita Cosby, Fox News.

HUME: And coming up, how is the election shaping up in those battleground states? Which candidate is making inroads and where? We'll ask Michael Barone after a quick break.

(COMMERCIAL BREAK)

Deregulation of Derivatives Would Be a Bad Mistake

August 11, 2000

American Banker

By Randall Dodd

The derivatives deregulation bills that a few members of Congress are franticly rushing through the legislative process are seriously flawed.

This is a huge market - the Bank of International Settlements recently estimated it at $190 trillion worldwide - but there has been scant public debate about deregulating it. Arguments for doing so have gone unchallenged.

Public debate is not only essential to democracy on principal, but also serves the practical purpose of ferreting out policy errors and omissions.

Two very similar bills would affect the regulation of derivatives markets.

In the Senate, S 2697, co-sponsored by Sen. Richard Lugar, R-Ind., and Sen. Phil Gramm, R-Tex., has been reported out of the Agriculture Committee and awaits action from the Banking Committee.

In the House, Rep. Thomas Ewing, R-Ill., has authored HR 454, and slightly modified forms of the bill have been reported out of three committees - Agriculture, Banking, and Commerce.

All these versions of the legislation would exclude over-the-counter derivatives from government regulation and radically reduce the level or surveillance and supervision on futures exchanges.

The proponents of deregulation build their case on three points:

Financial markets are so large that they are not susceptible to manipulation.

There is no price-discovery process in over-the-counter derivatives markets, so there is no public-interest concern.

The OTC derivatives markets are made up of sophisticated investors who do not need to be protected from fraud and the failure of others.

Let me point out the problems with these premises.

RISK OF MANIPULATION

The world's largest and most liquid market is the one for foreign exchange. Yet the Quantum Fund hedge fund operated by George Soros is widely credited - or blamed - for moving the market to devalue the British pound in September 1992.

The market for U.S. Treasury securities, with its $600 billion in daily trading volume and another $1 trillion in repurchase agreement transactions, is the world's premier market in terms of efficiency and sophistication. Yet this market has been the subject of manipulation several times in recent years:

The prestigious bond trading firm of Salomon Brothers was found to have cornered the bond market in 1992.

In 1996 the investment bank Fenchurch was found to have corned the 10-year note market in order to manipulate the futures market.

Last December the head of the Federal Reserve Bank of New York's bond trading desk warned about repeated incidents of manipulation in the markets for repurchase agreement on Treasury securities.

PUBLIC INTEREST

The prices and rates established in OTC derivatives markets are, in fact, regularly reported as the reference prices and rates for other markets throughout the economy. Information about rates and spreads in the interest rate swaps market is critical to those for home mortgages and corporate bonds.

This leading role is all the more important in light of the possible demise of the U.S. Treasury securities market as federal government surpluses continue to shrink that market.

The forward and swap rates on foreign currency are regularly and widely reported, and they are critical to international trade and cross-border investments. This is not an incidental part of the OTC derivatives markets. Interest rate swaps, forward rate agreements, and foreign exchange forwards and swaps make up 77% of the volume in the OTC derivatives markets, according the Bank for International Settlements.

The role of these markets in establishing prices used throughout the economy has long been the basis for regulatory oversight. As the Commodity Exchange Act states:

"The prices involved in such transactions are generally quoted and disseminated throughout the United States and in foreign countries as a basis for determining the prices to the producer and the consumer of commodities, and the products and byproducts thereof, and to facilitate the movements thereof in interstate commerce." These markets "are affected with a national public interest" making it "imperative" that the federal government take actions to detect and prevent market manipulation and fraud.

SOPHISTICATED INVESTORS

Defining "sophistication" as having substantial wealth is not a good enough measure. Moreover, requiring that investors be sophisticated is in practice not enough to assure safety and soundness.

Imagine an investment firm with $5 billion in capital and management made up by the former head of the top bond trading firm on Wall Street and a couple of economists who received Nobel prizes for developing derivative pricing formulas.

This combination of capital, financial market experience, and intellectual brilliance is at the very highest standard for market sophistication. Yet these attributes, plus $1 trillion in derivatives, were the state of Long Term Capital Management.

These sophisticates orchestrated such an enormous failure that they lost not only 90% of their investors' money but also disrupted market activity and threatened the solvency of many of the largest financial institutions. Sophistication is clearly not enough to assure that derivatives market do not threaten the rest of the economy.

In light of these problems with the premises underlying the broad-reaching deregulation of derivatives, lawmakers should halt their frantic rush to cut them loose from regulatory oversight.

Instead they should pursue a deliberate course to determine the appropriate level of regulation.

Mr. Dodd is a director of the newly created Derivatives Study Center at the Economic Strategy Institute, a nonprofit public policy research organization founded in 1989 in Washington.

Daily Monitor

July 19, 2000

Congressional Quarterly Weekly

The Economic Strategy Institute, which studies international trade and globalization, has tapped Randall Dodd to head up their new Derivatives Study Center. The center will spend three years studying the safety of the global economy. Since 1996, Dodd served as a special advisor to the Commodity Futures Trading Commission and has taught at American University, which he plans to continue. He also worked on Capitol Hill, as legislative director for Rep. Joseph P. Kennedy II, D-Mass., in 1995, and as economist for the Democratic Study Group. Before that tenure, he worked for the Joint Economic Committee.

Off the Bus, but Bound for the Screen

July 4, 2000

Washington Post

By Richard Morin and Claudia Deane

Politicians do it. Rock bands do it. But think tankers usually don't do it.

Exactly a year ago this month, we announced the coast-to-coast bus trip planned by the Center for the American Founding, a McLean-based tank fueled by the intellectual fires of right-thinking Balint Vazsonyi. The goal of the bus trip, for which the group raised close to $1 million, was to promote discussion of the nation's founding principles as condensed by Vazsonyi into four points: the rule of law, individual rights, security of property and common American identity.

The planned 128-day, 22,600-mile journey started in Florida in late February and was to end today with a fabulous Fourth of July celebration in Philadelphia.

Turns out they fell a wee bit short. The tour ended two months ago after the riders had hit about half the nation's state capitals and crossed the continent twice.

"It was exhilarating and exhausting," said Vazsonyi, who was on the bus every last mile of the trek, as was his wife. "Everybody warned us that after a week we would be screaming to get out. That didn't happen."

So what did happen? "After signaling initial interest, major national media--to our great disappointment--did not cover the tour," according to the group's Web site.

No matter: Hollywood called! Or at least the thinking person's version of Hollywood: public television. WETA expressed interest in a documentary based on the center's 70 hours of accumulated videotape of the road trip. The center is now in full production mode.

Despite the lack of publicity, Vazsonyi said: "We learned that Americans deeply care about these things, and think deeply about them. There's a general perception that nobody gives a darn. That's not what we found."

Does he miss the bus? "Yes and no. As we are editing the tape, we see it all the time," he said. "It was great, but we spent a lot of time on that bus."

SURPLUS MATH: Before the politicians begin spending the ever-expanding federal budget surplus, they should divide by five, say James Horney and Robert Greenstein of the Center on Budget and Policy Priorities.

That's because they say the amount of the projected surplus that will actually be available to spend on tax cuts or new programs over the next 10 years is about $400 billion--not the $1.9 trillion surplus projected last week by the Office of Management and Budget.

Horney knows how to do budget math. Before joining the center last year, he was the chief of the projections unit in the budget analysis division of the Congressional Budget Office for seven years and coordinated its projections of expenditures, surpluses and deficits.

Here's how Greenstein and Horney say the budget surplus figures will really add up:

"When surpluses in the Medicare Hospital Insurance trust fund are placed off-limits along with Social Security surpluses, as both parties are moving to do, and the cost of maintaining current policies in areas such as aid to farmers, middle-class tax burdens, and discretionary spending are taken into account, the $1.9 trillion figure is cut in half."

That's not all. That amount would have to be roughly cut in half again because funds will be needed to help restore Social Security and Medicare to financial health--unless, of course, lawmakers opt to fix those massive entitlement programs through a payroll tax increase (fat chance) or benefit reductions (no way).

Greenstein and Horney have one final thought: Instead of helping to fund a repeal of the estate tax, the $400 billion surplus would be better spent on programs to help the uninsured, reduce child poverty, improve Medicare benefits or clean up environmental hazards or on tax cuts that "distribute the tax cut benefits more broadly and equitably and have the potential to increase growth."

DERIVATIVE THINKING: The Economic Strategy Institute is starting a Derivatives Study Center, to be run by new ESI fellow Randall Dodd. For the investment-challenged among us, derivatives are financial contracts whose worth is based on the value of underlying stocks, bonds or other commodities.

"Derivatives serve as a powerful financial tool used in risk management, but the pace of innovation and the diffusion of sophisticated derivatives instruments have raised regulatory concerns," said Dodd, a veteran of the Commodity Futures Trading Commission and the Joint Economic Committee who currently teaches at American University.

ESI is funding the new center with a three-year, $300,000 grant from the Ford Foundation.

PEOPLE: Anthony Cordesman has been named the Arleigh A. Burke Chair in Strategy at the Center for Strategic & International Studies. Cordesman has been a senior fellow for strategic assessment at CSIS and is former co-director of its Middle East program, as well as an adjunct professor of national security studies at Georgetown University and a military analyst for ABC News. Cordesman replaces Sir Laurence Martin, who is returning to Britain after the completion of his two-year tenure at CSIS.

Scott Rayder has joined the Heritage Foundation as a senior technology policy analyst, fresh from a stint at the House Science Committee. Heritage also recently promoted Ana Eiras from research assistant to trade analyst.

ESI Receives Major Ford Foundation Grant to Create Derivatives Study Center

ESI PRESS RELEASE

Contact: Sanjay Mongia, (202) 326-8554

Washington, D.C., June 27, 2000 -- The Economic Strategy Institute (ESI) announces that it has received a major grant from the Ford Foundation to create a Derivatives Study Center. The three-year project will examine issues related to the safety and soundness of the international financial system.

Randall Dodd, newly appointed ESI Fellow, will serve as the Director of the Derivatives Study Center. The project is spurred by the concern for how the growing importance of the financial sector has made the overall economy more vulnerable to financial market disturbances. The financial crises in Mexico in 1994 and in East Asia in 1997 had a direct impact on U.S. trade, employment, and immigration. The collapse of Long Term Capital Management in 1998 reverberated through the markets for home mortgages and corporate bonds. In order to address this growing influence of the financial sector on employment, growth, and economic stability, the Derivatives Study Center will concentrate its efforts on creating an open debate over the most appropriate regulatory structure for the financial system.

According to Dodd, "derivatives serve as a powerful financial tools used in risk management, but the pace of innovation and the diffusion of sophisticated derivatives instruments have raised regulatory concerns." The amount of outstanding derivatives contracts worldwide has grown to exceed $90 trillion. Dodd states that "the Derivatives Study Center will undertake research to analyze financial markets and institutions in order to ascertain where private market pressures fail to encourage prudential and efficient market activities." The Derivatives Study Center will disseminate research findings through publications, education and training programs, and outreach activities.

Prior to joining ESI, Dodd served as an economist at the Commodity Futures Trading Commission, and as special adviser to Commission Holum. He formerly worked as a senior economist at the Joint Economic Committee of the U.S. Congress, as an economist for the Democratic Study Group, and as Legislative Director for Rep. Joe Kennedy. He currently teaches at American University. Dodd received his Ph.D. in economics with a specialization in international trade and finance from Columbia University.

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