(Adds details from hearing, background)
WASHINGTON, March 2 The nominee for the U.S.
Treasury's top domestic post on Tuesday said he believed
certain derivatives contracts, such as dollar swaps, could be
exempted from being traded on exchanges under Obama
administration proposals to boost market transparency.
Jeffrey Goldstein, who was named in July 2009 to become
Treasury undersecretary for domestic finance, told the Senate
Finance Committee that the administration's market reform
proposals would prevent abuse and promote transparency, but
there were certain cases where derivatives might be better off
not traded on exchanges.
"I think that the exemptions would be in certain markets
where you could adversely affect the trading of some important
securities -- including the dollar swaps, and other things,"
Goldstein said, answering a question during a confirmation
hearing. He added that he looked forward to examining the issue
further with lawmakers.
Goldstein was asked about his views on currency swaps by
Senator Maria Cantwell, a Democrat from Washington state, who
criticized the use of cross-currency swaps employed by Goldman
Sachs & Co (GS.N) on behalf of Greece as disguising the amount
of Greece's public debt.
"It's all perfectly legal, but in my opinion its a scam,
and we ought to have these regulated and on exchanges and have
transparency and go through clearing houses," Cantwell said.
Goldstein said he believed that the Treasury's proposed
improvements in trading practices for over-the-counter
derivatives trade "is meant to restore confidence in the
financial system and make sure that the we do not put taxpayers
at risk in the way that occurred at the height of the financial
Senators also questioned Goldstein about the work one of
his previous employers -- private equity firm Hellman &
Friedman -- did to set up tax-shelter "blocker" corporations in
the Cayman Islands on be half of clients.
Goldstein said these entities were set up to aid tax-exempt
organizations such as pension funds and universities to
maintain their income as tax exempt.
Asked by Finance Committee Chairman Max Baucus whether such
corporations reduced income to the U.S. Treasury, Goldstein
replied, "I'm no tax expert, Senator, but it's my understanding
that these blockers are used almost exclusively if not totally for the purpose of tax-exempt entities in the United States."
The tax-writing Finance Committee has been particularly
sensitive to tax issues involving Treasury nominees,
questioning Treasury Secretary Geithner last year on mistakes
he made in filing his personal income tax returns when he
worked at the International Monetary Fund.
The panel also delayed consideration of Lael Brainard's
nomination as Treasury undersecretary for international affairs
due to an extensive income tax inquiry. Brainard's position has
yet to be confirmed by the full Senate.
Nonetheless, Goldstein said he would be willing to work
with the committee on the question of whether the so-called
blocker corporations should continue to allow tax-exempt
entities shield unrelated business income from taxation,
calling it "an important policy question."
(Reporting by David Lawder, Editing by Theodore d'Afflisio)