Not Funny

This isn't a "funny" so if you're looking for a laugh, give it a skip.

I was watching C-Span last night. Hillary Clinton, in a speech yesterday in the Senate, said that the Wall Street meltdown was due to the rapid evolution of the banking industry under outmoded laws created in response to The Great Depression.

That's correct but that's not the whole picture.

Perhaps our regulations from the past do need updating, but part of the root cause of this debacle is a brand-new regulation that we didn't have before, a regulation that regulates the regulators and keeps them from doing their jobs.

The Commodity Futures Modernization Act of 1999 was quietly slipped into the budget bill, and Bill Clinton signed it into law December 2000.

This Act looks great at first glance, but it has an ulterior motive: preventing oversight of "credit swaps." (Credit swaps are financial instruments, such as sub-prime mortgages, bundled and sold as securities.) http://thomas.loc.gov/cgi-bin/query/F?c106:1:./temp/~c1069VrXJa:e45437

The Commodity Futures Modernization Act shielded hedge funds and investment banks from the scrutiny of both the SEC and the Commodities Futures Trading Commission (CFTC). This kind of scrutiny ensures financial entities have enough assets to cover their losses. In other words, the SEC and the CFTC were blocked from checking if the bettors really had enough money in their pockets to cover all the bets they'd made while they were rolling the dice.

What the Commodity Futures Modernization Act also did was to partially repeal The Glass-Steagal Act http://en.wikipedia.org/wiki/Glass-Steagall_Act , the Depression-era regulations that established the Federal Deposit Insurance Corporation (FDIC) and sought to separate bankers from brokers.

The Glass-Steagal Act had long been a target of Republican lawmakers "because government is not the answer." http://www.pbs.org/wgbh/pages/frontline/shows/wallstreet/weill/demise.html

One of the sponsors of this Act was Phil Gramm. Gramm's wife had been on Enron's Board of Director's and the Act had a provision commonly called "the Enron loophole." http://en.wikipedia.org/wiki/Enron_loophole

Up until recently, Phil Gramm was McCain's go-to guy for the economy. Currently he's Chairman of UBS Bank which has had its share of problems recently the same as all the others http://www.bloomberg.com/apps/news?pid=20601085&sid=aCQiBbgZcfZE&refer=europe , not that anyone has to worry about Phil Gramm's personal financial health as he probably still has some of that $1,000,000-plus he received from various securities interests while in Congress.

Until his "nation of whiners" comment in July, Gramm was the shoo-in for McCain's choice to run the economy. And, he's probably still on the short-list although maybe in a lower-profile, behind the scenes position.

After all, McCain and Gramm have been pals since the 1980's Savings and Loan Scandal when McCain was one of the “Keating Five”. http://en.wikipedia.org/wiki/Keating_Five

Charles Keating went to jail http://law.jrank.org/pages/3500/Charles-Keating-Trials-1991-99-Keating-Draws-Maximum-Sentence.html

McCain was cleared of impropriety but censured for poor judgment.