As the financial reform debate progresses in D.C., one thing to watch out for are reforms to the so-called "off-balance-sheet" activity that got out of control in the lead-up to the financial crisis. These are the transactions -- often involving derivatives such as swaps -- that allowed investment managers to take on extreme market exposure while hiding it from investors. Here in Illinois, the Wall Street managers of our Bright Start college savings fund heavily leveraged their investments with off-balance-sheet transactions. As a result, the state -- as well as independent analysts -- had little way of knowing that the fund would implode the way it did in the fall of 2008.
To learn more about the issue, be sure to read this great interview published over the weekend with Jennifer Taub of the University of Massachusetts-Amherst.
