Credit default swaps, which trade in a $60 trillion global market without government oversight, are contracts to insure against the default of financial instruments like bonds and corporate debt. They played a prominent role in the credit crisis that brought the downfall of investment banking giant Lehman Brothers in the fall and pushed AIG to the brink of collapse, forcing the government to provide more than $180 billion in support.
Hedge funds, vast pools of capital holding an estimated $1.5 trillion in assets, operate mostly outside of government supervision. As the market crisis deepened in the fall, hedge fund selling was widely cited as one of the reasons for increased volatility that pounded stocks and bonds.
U.S. law generally does not require hedge funds or other private pools of capital to register with a federal financial regulator, although some funds that trade commodity derivatives must register with the Commodity Futures Trading Commission and many funds register voluntarily with the Securities and Exchange Commission. As a result, there are no reliable, comprehensive data available to assess whether such funds individually or collectively pose a threat to financial stability.
Finally, Geithner will unveil new standards for money market funds to reduce the risk of rapid withdrawals. Money markets have traditionally been seen as one of the safest and most conservative investments. They wouldn't make anybody rich, but they weren't supposed to ever decline in value.
As the financial crisis worsened and one fund actually lost value -- or broke the buck in money market terms -- there was a run on the entire money market industry. Investors pulled their money out of the funds, causing further pressures on the stock market.
There is also expected to be some action today on how to handle bonuses.
Before Geithner testifies, the House committee will vote on the markup of a measure to empower the government to stop future bonus payments at bailed-out financial institutions if Geithner and regulators determine that the employee compensation is "excessive."
The measure is a watered-down proposal compared to the lawmakers' legislation last week to put a 90 percent tax on bonus payments at bailout recipients after the $165 million bonus mess at AIG.
With reports from The Associated Press