Most economists agree: deregulation is not what caused today’s problem. (The repeal of Glass-Steagal, for instance—the Gramm-Leach-Bliley Act allowing commercial banks to act as investments banks, and vice-versa—wasn’t the cause. It might even be one of the reasons things aren’t worse than they are.)
What’ they’re not saying: not regulating is what caused the problem.
Everyone agrees: today’s regulatory structure is not designed or sufficient for today’s financial markets. A modern regulatory structure would, for instance, impose capital/leveraging limits on issuers of complex derivatives, such as credit default swaps—just as commercial bankers and insurers are required to maintain sufficient reserves to cover losses.
But that’s illegal, thanks to the Commodity Futures Modernization Act, snuck through by Phil Gramm during Clinton’s waning days.
That regulation specifically banned regulation of credit default swaps.
I follow all the major econoblogs via Google Reader—it’s easy for me to search them all.
None of them has discussed the Commodity Futures Modernization Act (aside from passing mentions and—from Tyler Cowen—promises of future posts).
One exception: Justin Fox, who offers this brief pithy history:
Its provisions were slipped into an appropriations bill in conference committee and passed the House and Senate the very next day.
It was never debated in committee or on the floor.
Lame-duck President Bill Clinton signed it into law six days later. And they say Paulson and Bernanke are trying to move too fast!
When we have to rely on Daily Kos and The Huffington Post to get analysis of recent economic history, it’s time to take a hard look at the econoblogosphere.
Here are all the search results, going back to July 15.
Hale “Bonddad” Stewart: Who’s To Blame For the Mess We’re In?
…Financial Services Modernization Act repealed Glass-Steagall, a law that had separated the commercial-banking industry from Wall Street, and the two industries, plus insurance, came together again. Banks became bigger, clumsier, and hard to manage. Apparently, risk-management became all but impossible, even as banks had greater access to larger …
The Huffington Post Full Blog Feed – Sep 28, 2008 (4 days ago)
Open Thread and Diary Rescue
…How the Commodity Futures Modernization Act Was Moved Through Congress. (ybruti) In this continuing series, LivingOxyMoron describes and defines some of the “basic” concepts underlying the sub-prime economic crisis in Understanding the Crisis, Part 2: The Borrower and Loan Originator. (vcmvo2) Eddie C relates his own traumatic experience with mo…
Daily Kos – Sep 25, 2008 9:17 pm
Robert Scheer: A Fox to Protect the Henhouse?
…and the Commodity Futures Modernization Act of 2000. By preventing mergers between the various branches of Wall Street, the former act reversed basic Depression-era legislation passed to prevent the sort of collapse we are now experiencing. The latter legitimized the “swap agreements” and other “hybrid instruments” that are at the core of the cr…
The Huffington Post Full Blog Feed – Sep 24, 2008 2:26 am
Chris Cox, American hero
…of the Commodity Futures Trading Commission–which regulates exchange-traded derivatives–campaigned for the authority to oversee the OTC kind as well, but was batted down by Congress and the Clinton Treasury Department. (I wrote about this a few days ago.) And on December 14, 2000, Phil Gramm, Jim Leach, Richard Lugar, Thomas Ewing and a few ot…
TIME: The Curious Capitalist – Sep 23, 2008 6:29 pm
Deborah Senn: Fifty Chimpanzees or One Toothless Gorilla
…is the Commodity Futures Modernization Act of 2000. The act specifically banned regulation of something called “credit default swaps.” And it is precisely the creation and trading of these unregulated CDS’s that led to AIG’s downfall. In a nutshell, here is how a CDS works. Imagine lending money to your brother-in-law whose creditworthiness is …
The Huffington Post Full Blog Feed – Sep 23, 2008 9:06 am
Howard Schweber: Paulson’s Plan – Annotated
…2000 Commodities Futures Modernization Act. That act was added to the budget by Phil Gramm — two days after the Court’s decision in Bush v. Gore when no one was paying very much attention. “Nobody in either chamber had any knowledge of what was going on or what was in it,” says a congressional aide familiar with the bill’s history (quoted in …
The Huffington Post Full Blog Feed – Sep 22, 2008 3:06 pm
The regulation of derivatives
…commodity, weather and freight derivatives.” Here is one overview of MiFID. Implementation and enforcement is on a country-by-country basis and of course the UK is the big player. Read pp.27-29 in the very first link above and you’ll see that overall the UK has a looser regulatory approach than does the United States, though not on…
Marginal Revolution – Sep 22, 2008 6:06 am
Three Times is Enemy Action
…with the Commodity Futures Modernization Act, which was slipped into a “must pass” spending bill on the last day of the 106th Congress. This Act greatly expanded the scope of futures trading, created new vehicles for speculation, and sheltered several investments from regulation. As with both Gramm-Leach-Bliley and Garn-St. Germain, large parts…
Daily Kos – Sep 21, 2008 7:19 am
Did the Gramm-Leach-Bliley Act cause the housing bubble?
…cover the Commodity Futures Modernization Act as well.
Marginal Revolution – Sep 19, 2008 4:57 am
Arianna Huffington: How Obama Can Demonstrate Real Leadership on the Economic Crisis
…the Financial Modernization Act, which obliterated Glass-Steagall; and the Commodity Futures Modernization act, which gave us unregulated trading of derivatives and the kind of credit default swaps that threaten our economy — both signed into law by Bill Clinton. Speaking at a large rally in Las Vegas on Wednesday, Obama declared: “we can’t st…
The Huffington Post Full Blog Feed – Sep 18, 2008 4:03 pm
James Moore: A Nation of Village Idiots
…called the Commodity Futures Modernization Act into the budget bill. Nobody knew that the Texas senator was slipping America a 262 page poison pill. The Gramm Guts America Act was designed to keep regulators from controlling new financial tools described as credit “swaps.” These are instruments like sub-prime mortgages bundled up and sold as …
The Huffington Post Full Blog Feed – Sep 17, 2008 11:02 pm
McCain Adviser Phil Gramm’s Role in Today’s Crisis
…Commodity Futures Modernization Act], he declared, would ensure that neither the sec nor the Commodity Futures Trading Commission (cftc) got into the business of regulating newfangled financial products called swaps—and would thus “protect financial institutions from overregulation” and “position our financial services industries to be world lea…
Economists for Obama – Sep 21, 2008 8:19 pm
Robert Scheer: Earth to McCain: It’s a Crisis
…were the Commodi
ty Futures Modernization Act and the Gramm-Leach-Bliley Act. The Gramm is former Sen. Phil Gramm, who was chair of the Senate Banking Committee when he acted as chief sponsor of both pieces of legislation. The same Gramm that McCain picked to co-chair his presidential campaign. Gramm proved an embarrassment when he cavalierly in…
The Huffington Post Full Blog Feed – Sep 17, 2008 2:58 am
Yet Another Reason to Vote Against John McCain
…behind the Commodity Futures Modernization Act and the Gramm-Leach-Bliley Act. The former made legal “the mortgage swaps distancing the originator of the loan from the ultimate collector,” while the latter “destroyed the Depression-era barrier to the merger of stockbrokers, banks and insurance companies…. CARLY FIORINA…. …
Grasping Reality with Both Hands: The Semi-Daily Journal Economist Brad DeLong – Sep 16, 2008 11:44 am
Krugman: Phil Gramm would be ‘just the guy’ to lead us into a Great Depression.
…pushed the Commodity Futures Modernization Act in 2000, which made legal “the mortgage swaps distancing the originator of the loan from the ultimate collector.” The Nation writes that “those two acts effectively ended significant regulation of the financial community.”
Think Progress – Sep 16, 2008 6:56 am
Robert Scheer: She’s Clueless, He’s Worse
…of the Commodity Futures Modernization Act, which former Sen. Phil Gramm, R-Texas, pushed through Congress just hours before the 2000 Christmas recess. Gramm, until recently co-chair of the McCain campaign, also had co-authored the Gramm-Leach-Bliley Act, which became law in 1999 with President Bill Clinton’s signature. That gem, which Gramm had…
The Huffington Post Full Blog Feed – Sep 10, 2008 12:21 am
Mitchell Bard: McCain’s Claims of “Change” in His Acceptance Speech Are New Standard for Chutzpah
…as the Commodity Futures Modernization Act), which exempted energy trading from regulatory oversight. In other words, speculation was brought to the gas markets. (Keith Olbermann did an in-depth, fact-heavy, flawlessly researched report on this issue, which you can watch here.) Who was the person responsible for the Enron Loophole? Do I have to…
The Huffington Post Full Blog Feed – Sep 5, 2008 9:27 am
Oil Prices and Speculation
…when the Commodity Futures Trading Commission examined Vitol’s books last month, it found that the firm was in fact more of a speculator… Even more surprising … was the massive size of Vitol’s portfolio — at one point in July, the firm held 11 percent of all the oil contracts on the regulated New York Mercantile Exchange. The discovery…
Economist’s View – Aug 21, 2008 2:40 pm
Michael B. Ellis: Fiddling As The Housing Market Burns
…of the Commodity Futures Modernization Act (helping deregulate the lending industry), and his known participation as being one of the framers of McCain’s economic plan, I think it would behoove us to ask McCain, considering Gramm’s past history, are we going to see a complete overhaul of his economic plan, or should we assume Gramm’s “let them …
The Huffington Post Full Blog Feed – Jul 25, 2008 3:53 pm
Robert Scheer: The Real Legacy of the ‘Reagan Revolution’
…sponsored the Commodity Futures Modernization Act of 2000, which allowed Enron’s scamming to happen. As Ken Lay, who was chair of Gramm’s election finance committee, put it quite candidly when asked for the secret of Enron’s success, “basically, we are entering or in markets that are deregulating or have recently deregulated.” Part of that dere…
The Huffington Post Full Blog Feed – Jul 16, 2008 5:12 am
Max Blumenthal: Phil Gramm May Be Gone, But His Porn Lives On
…Commodity Futures Modernization Act” into a omnibus spending bill just as Congress headed off for summer vacation. His amendment instantly enabled the creation of a shadow banking system — “weapons of financial destruction” in the words of Warren Buffet — that directly contributed to the current mortgage foreclosure crisis. Millions of America…
The Huffington Post Full Blog Feed – Jul 15, 2008 7:11 am