Book Reviews | Gordon Campbell | News Flashes | Scoop Features | Scoop Video | Strange & Bizarre | Search

 


Collins: Enabling Acts - For An Era Of Greed

ENABLING ACTS
FOR AN ERA OF GREED



The Money Party at Work

Michael Collins

Huge majorities in both houses of Congress voted for legislation to allow the biggest bank heist of all time. But this time, it was the banks pulling the heist.

Our financial system looks ruined beyond repair. The credit default swaps crisis is 40 or so times bigger than the real estate meltdown over subprime derivatives. The top 25 banks in the United States are loaded down with $13 trillion in credit default swaps and the deal is coming unraveled. If we accept the highly dubious assumption that the debt from the financial meltdown needs to be repaid by us, were looking at $43,000 a citizen right now. And we're just starting.

It didn't get that way by accident. There was special legislation that enabled the current crisis.

This was classic Money Party strategy and tactics.

The strategic goal was to turn Wall Street into a big casino for the "in crowd" of major investors, funds, and institutions. No rules and no regulations: "let the market take care of it" was the philosophy.

The tactics were easy. First you set up a scholarly group called the Law and Economics movement to give your scheme legitimacy. Then you give money and other favors to members of Congress.

At the right moment, you call in your congressional markers to let the banks start doing what they did to spark the Great Depression. Walk into the Wall Street casino loaded with cash and spend like they're on coke. Your corny academic group has a couple of judges who decide a case that gives legal grace to the scheme. The casino is legit says the court. You then go for the whole nine yards by bringing back the long outlawed derivatives, subprimes, credit default swaps, etc.

The corporate media either ignores your "long con" altogether or covers it on their back pages.

Done deal! It's the perfect storm to create economic chaos allowing the most massive transfer of wealth since the Visigoths sacked Rome in 410 CE. It's all about socialism for the rich and survival of the fittest for the rest of us.

But Congress and the Treasury Department will preserve the financial elite in perpetuity. Why? To begin with, they'd have to admit that they created the problem in the first place with their enabling legislation. Congress would also have to admit to absolutely zero oversight on this matter despite warnings.

Legislative, Judicial and Executive Branches - Acting in Unison Deliver the Goods

Three distinct events enabled the current economic chaos. The baseline requirement for the era of greed was satisfied in 1999 when Congress repealed key provisions of the Glass-Steagall act. That law was established during the first Great Depression. It tightly restricted the opportunities for reckless speculation by banks.. They were barred from selling stocks and other speculative schemes. Title 1 of Financial Services Modernization Act, 1999 says it all:


"Facilitating affiliation among banks, securities firms and insurance companies"

"Commercial banks, brokerage firms, hedge funds, institutional investors, pension funds and insurance companies can freely invest in each others businesses as well as fully integrate their financial operations."

This was a bipartisan effort with the Senate version passing 90 to 8 and the House 362 to 57.

The once scorned derivatives had been the Holy Grail for "free" market radicals on Wall Street and elsewhere for years. They said that the restrictions on these products were unnecessary and stifled the free market ("free" for them). Even before Congress acted definitively in December 2000, the U.S. Court of Appeals for the 7th Circuit struck down the ability of the Securities and Exchange Commission (SEC) to rein in ruinous high risk financial schemes on Sept.1, 1999.

Reagan appointees Richard Posner, then chief judge, and current chief judge Richard Easterbrook were key movers. They're also heavily involved with the Law and Economics movement, a right wing, free market movement that opposes almost all regulation in Pavlovian fashion.


7th Circuit judges Richard Posner and Frank Easterbrook started
the demolition of SEC regulatory power of high risk derivatives.

Credit default swaps and other derivatives had been illegal for decades. In 1981, specific rules were set up to tighten restrictions against these schemes. But all that changed on Dec. 21, 2000 when the lame duck Congress passed the "Commodity Futures Modernization Act of 2000'" making these products legal. The legislation also barred the gathering of information that would serve as early warning on the legalized gambling on credit worthiness. Regulators were helpless in looking out for the public. Here's the title of the House version of the bill:

"To reauthorize and amend the Commodity Exchange Act to promote legal certainty, enhance competition, and reduce systemic risk in markets for futures and over-the counter derivatives, and for other purposes" 106th Congress, 2nd Session, H. R. 5660

This is the vital wording modifying the Securities Act of 1933 that undid the economy:
"Section 2A--Swap Agreements The Commission is prohibited from -- promulgating, interpreting, or enforcing rules; or issuing orders of general applicability." The Senate and House bills were combined in to H.R. 4577, an appropriations bill for the Departments of Labor, Health and Human Services, and Education signed by President Clinton. Someone had a perverse sense of humor.

In other words, Congress legalized what had been illegal for decades and it secured the 7th Circuit's opening gambit of handcuffing the SEC in dealing with the new high risk financial products. Congress fixed the game so that the short staffed regulatory agencies couldn't monitor the market even if they wanted that function.

Good luck trying to find the legislative debate on this momentous change. There was none. The enabling legislation for this disaster was passed by an overwhelming majority in the House of Representatives and by unanimous consent in the Senate.

It's important to have a "Roll Call" for the sponsors of the "Commodity Futures Modernization Act of 2000." They made it happen.



Top row: Senators (S. 3283: Richard Lugar (R-IN), sponsor, cosponsors Senators Tom Harkin (D-IA) and Tim Johnson (D-SD).plus cosponsors, Retired Senators Peter Fitzgerald (R-IL), Phil Graham, (R-TX), Chuck Hagel (R-NE). Bottom: Representatives (all retired) (H.R. 5600)Thomas Ewing (R-IL) sponsor; cosponsors Thomas Bliley, Jr. (R-VA), John J. LaFalce (D-NY), Jim Leach (R-IA).

Expect More of the Same

The bailout and other efforts to save Wall Street firms and the large banks are essentially an effort to deal with the problems of derivatives and other market failures. Wall Street got the court decisions and legislation it wanted and then promptly proceeded to create today's disaster. They sold these risky products and now they have to pay off. But they don't have the money even with the current bailouts. Where will they get it? The federal government was the only sucker left to tap and that bet came through to the tune of $4.6 trillion. There's $4.6 trillion awaiting further requests from the Federal Reserve

The culprits are still in place at failing financial institutions.

Don't hold your breath waiting for political action to fix the situation. Both parties were in on this mess. Huge majorities in both houses of Congress voted for key legislation to allow the biggest bank heist of all time. But his time, it was the banks pulling the heist.

That's why the bankers have to stay in place. To remove them, would be telling, as William K. Black said recently:

But the other element of your question is we don't want to change the bankers, because if we do, if we put honest people in, who didn't cause the problem, their first job would be to find the scope of the problem. And that would destroy the cover up.
William K. Black, Apr. 3, 2009

But it was all legal, wasn't it?

THE END

Permission to reproduce in whole or in part with a attribution of authorship and a link to this article

© Scoop Media

 
 
 
 
 
Top Scoops Headlines

 

Gordon Campbell: On The Crisis In Greece

Greece, as the cradle of democracy, is getting no brownie points for actually practicing it. The decision by the Greek government to go back to the people for a mandate for the bailout terms being proposed by the Eurozone seems entirely appropriate. More>>

ALSO:

Stories Of Scoop: Alastair Thompson, Scoop Media & The Cost Of Free Journalism

How does a news organization that cares about authentic journalism and has a mission to effect “positive change” continue to operate in these times of derivative storytelling when advertising dollars are no longer determined by the quality of editorial content? More>>

ALSO:

Gordon Campbell: On The Pope’s Encyclical On Climate Change

The spread of market mechanisms into every facet of life – as health, education and the environment get treated as mere commodities – has seen economic efficiency worshipped in its own right as a totem, and as a substitute for morality. The Laudato Si encyclical issued today by Pope Francis on climate change and the environment goes some away to restoring a sane balance. More>>

ALSO:

Scoop Turns Sixteen: How Scoop's “Ethical Paywall” Model Has Changed Everything

As of this month, a broad range of professional organisations, including constitutional institutions, government agencies & departments, NGOs, Unions, CRIs, law firms, PR agencies, accountancy firms, media organisations, libraries and businesses - all of which make regular use of Scoop in their daily work and for professional research - have joined Scoop’s new “Ethical Paywall” copyright licensing scheme. More>>

ALSO:

Gordon Campbell:
On The Sepp Blatter Resignation

Any initial elation at Sepp Blatter’s resignation as the overlord of FIFA will be tempered by his declared intention to stay on until at least December and possibly March 2016, to enable his successor to be elected. Has FIFA got no existing succession plan that could kick in before this? More>>

ALSO:

Gordon Campbell: On The FIFA Scandal, And Similar Dirty Deal

With the US now investigating FIFA’s racketeering and money-laundering activities and the Swiss also looking at the bribes that went into the choice of Russia and Qatar as upcoming FIFA venues, the capos at FIFA are taking the fall for the boss of all bosses, Sepp Blatter - who has somehow been blissfully unaware of the dirty payoffs and extortion rackets conducted on his watch ... More>>

Get More From Scoop

 
 
 
 
 
 
 
Top Scoops
Search Scoop  
 
 
Powered by Vodafone
NZ independent news