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This will probably not go anywhere today, being all eyes are upon the bailout discussion next door, and to my own chagrin, it may even appear partisan in a time that bipartisanship is needed to save our country..

But I spent a lot of time digging through this and need to lay it down simply so I can move on..  Maybe some historian somewhere will dig it up when investigating where and when and how this crises began...

Perhaps some may take away from this the small part that it politically relevant and that is that the person responsible for removing the legislation that kept this type of speculation under control, could be our next Secretary of the Treasury if John McCain gets elected:  that would be Phil Gramm.  This is the story of how the bill was sneaked through the halls of Congress without nary a vote...nay without nary a debate....

it is common knowledge to some, but many discovering it for the first time, are outraged....

The bill is the Commodity Futures Modernization Act of 2000. Two versions of it were introduced in both houses; the House on December 14th, 2000; the Senate on December 15, 2000.

Both were introduced in the Agriculture Departments of their respective houses, because the agricultural commodities were the primary recipients of the deregulation.  For that reason, two Democrats from Farm States signed onto the bill in the Senate:  Tim Johnston from South Dakota, and Tom Harkin from Iowa, as well as one House Democrat...John J. LaFalce from Buffalo, New York...

Embedded in this bill were riders which freed up derivative securities to become deregulated as well.

Both bills were killed on arrival by both committees by sending them down to their respective sub-committees during the dying days of the 106th Legislative session....

At the same time, debate was ongoing over HR 4577, properly known as the Omnibus Bill, which was a giant bill providing funding for Departments of Labor, Health and Human Services, and Education, and related agencies from September 30th, 2000 to September 30th, 2001.  It was placed on the floor as of June 1st of 2000, and the House version was passed on June 14thand the Senate version was cleared on June 30th.  From there it went into conference committee....where it sat, and sat, and sat...  

The last day of session for the 106th Congress was December 15th, 2000. Just 3 days before, America had learned that the Supreme Court had nixed the ballot count challenge made by the Democrats, and that George W. Bush would become the next president....  Clinton was still president and had to sign the new budget.  On that last day the Conference Committee offered the Omnibus Bill onto the floor to be voted up or down as it was...  Everybody was anxious to head out of Washington for the holidays, and in the Senate it was passed on an unanimous voice assent, and in the House, it was overwhelmingly passed....On that date, the large Omnibus Bill was cleared for the signature of the President, just shy of two and three quarters of a month late after funding had expired....

Buried in that Omnibus Bill was HR5660, the undebated and unsigned Bill that was buried by the respective Agricultural committees in both the House and Senate just the day before.

That is how it became law...  Included in that bill was something that became known as theEnron Loophole.  It was use of this loophole which allowed Enron to shut power down to California, and then charge higher prices to meet pent up demand....  Wendy Gramm was the Enron officer responsible for this action..She was Phil Gramm's wife..

If one looks at the bills HR5660 and SB3283 which were killed in committee and then cross references them with the HR4577 inclusion in the gigantic (11,000 page) Omnibus Page, one finds some interesting discrepancies.

In both original bills, when one looks at the table of contents, ... Section 208 is missing... the sequence runs from 206, 207, 209, 210....  In the final document, 208 is where it should be...( an astute reader has shown that one can link to 207 and continue scrolling to reach through to 208).  So you may wonder what was missing... is it important or is it politically sensitive enough that it might benefit from not being seen?

The missing section which does not show up in the syllabus of the original bills, covers the changes made to the act of 1933 and 1934 which were enacted to prevent another Great Depression from never happening again... It is not long, so I am publishing it in full...

SEC. 208. AMENDMENTS RELATING TO REGISTRATION AND DISCLOSURE ISSUES UNDER THE SECURITIES ACT OF 1933 AND THE SECURITIES EXCHANGE ACT OF 1934.

(a) AMENDMENTS TO THE SECURITIES ACT OF 1933-

(1) TREATMENT OF SECURITY FUTURES PRODUCTS- Section 2(a) of the Securities Act of 1933 (15 U.S.C. 77b(a)) is amended–

(A) in paragraph (1), by inserting `security future,’ after `treasury stock,’;

(B) in paragraph (3), by adding at the end the following: `Any offer or sale of a security futures product by or on behalf of the issuer of the securities underlying the security futures product, an affiliate of the issuer, or an underwriter, shall constitute a contract for sale of, sale of, offer for sale, or offer to sell the underlying securities.’;

(C) by adding at the end the following:

`

(16) The terms `security future’, `narrow-based security index’, and `security futures product’ have the same meanings as provided in section 3(a)(55) of the Securities Exchange Act of 1934.’.

(2) EXEMPTION FROM REGISTRATION- Section 3(a) of the Securities Act of 1933 (15 U.S.C. 77c(a)) is amended by adding at the end the following:

`(14) Any security futures product that is–

`

(A) cleared by a clearing agency registered under section 17A of the Securities Exchange Act of 1934 or exempt from registration under subsection (b)(7) of such section 17A; and

`(B) traded on a national securities exchange or a national securities association registered pursuant to section 15A(a) of the Securities Exchange Act of 1934.’.

(3) CONFORMING AMENDMENT- Section 12(a)(2) of the Securities Act of 1933 (15 U.S.C. 77l(a)(2)) is amended by striking `paragraph (2)’ and inserting `paragraphs (2) and (14)’.

(b) AMENDMENTS TO THE SECURITIES EXCHANGE ACT OF 1934-

(1) EXEMPTION FROM REGISTRATION- Section 12(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78l(a)) is amended by adding at the end the following: `The provisions of this subsection shall not apply in respect of a security futures product traded on a national securities exchange.’.

(2) EXEMPTIONS FROM REPORTING REQUIREMENT- Section 12(g)(5) of the Securities Exchange Act of 1934 (15 U.S.C. 78l(g)(5)) is amended by adding at the end the following: `For purposes of this subsection, a security futures product shall not be considered a class of equity security of the issuer of the securities underlying the security futures product.’.

(3) TRANSACTIONS BY CORPORATE INSIDERS- Section 16 of the Securities Exchange Act of 1934 (15 U.S.C. 78p) is amended by adding at the end the following:

`

(f) TREATMENT OF TRANSACTIONS IN SECURITY FUTURES PRODUCTS- The provisions of this section shall apply to ownership of and transactions in security futures products.’.

For me had I been looking over these bills in committee, this title:

AMENDMENTS RELATING TO REGISTRATION AND DISCLOSURE ISSUES UNDER THE SECURITIES ACT OF 1933 AND THE SECURITIES EXCHANGE ACT OF 1934.

would have shown up as a red flag... With its omission, one would flip through 265 pages and say lets bury it in committee...

As if to show just how controversial and sensitive these inserts were at that time, here is a portion of the reply (March 9, 2000) by the SEC after perusing the draft of the GAO's report covering this issue....

Although the agencies have worked diligently, cooperated closely, and approached the negotiations in good faith, we have not yet reached a detailed consensus on how to regulate single stock futures and the markets and intermediaries that trade them.  The procedural and jurisdictional issues raised by the trading of single stock futures are extremely challenging and we believe that further discussions are necessary to achieve a full resolution.........

The SEC appreciates the profound and widespread consequences attached to the trading of single stock futures and believes it would be irresponsible to permit such products to trade without fully resolving all outstanding issues.  Therefore we strongly believe that single futures should not be permitted to trade in the United States until a comprehensive framework has been developed and implemented.  The adoption to the temporary or piecemeal fixes to the fundamental  regulatory disparities (ie insider trading,margin, customer suitability) is not an appropriate remedy -- In fact, it could damage the integrity of our capital and derivatives markets and result in regulatory arbitrage.

If it had been me, and had I wanted to pass a piece of financial regulation that was not approved by the SEC, I certainly know that I would try to hide it.

Now according to some sources, these parts were written by lobbyists for Enron and then given to Gramm to be inserted into legislation...  Somehow through Gramm's position on the Conference committee, it was able to be unknowingly slipped into law...much to the chagrin of Californians who later shelled out 40 billion for electricity more than they should have....

Since legislation is sneaked through Congress this way all the time, no matter how immoral; it is not illegal... this practice will probably not stop with this admission that it took place.  However, the magnitude of the scale with which we today are faced.. the immensity of asking for a loan amounting to two years of the entire spending of every governmental program... just in order to survive,.... puts an ominous aura surrounding this one sneaky, backhanded, transaction eight years ago.

If historians ever look back for the silver bullet that quelled this once great superpower at the time of its peak, if they don't point to the Bush election, they will eventually find themselves investigating the way this sneaky, backhanded legislation was passed, for "it" is what legally allowed deals worth hundreds of billions to be openly traded, with no real equity to back them up.....

Originally posted to kavips on Wed Sep 24, 2008 at 06:10 PM PDT.

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Comment Preferences

  •  Was Anyone There? (3+ / 0-)
    Recommended by:
    Marie, cfk, PvtJarHead

    If anyone was present as a first hand witness to those conferences and to what went down those two days in December, or were a member of the Clinton White House between 12/15 and 12/21 between when the bill was passed and the bill was signed, I would like your personal take of how this went down...

  •  I've met John LaFalce. (2+ / 0-)
    Recommended by:
    Marie, cfk

    We actually attended the same high school (as did Tim Russert!), albeit a few years apart. LaFalce is a genuinely nice guy who sincerely tried to be a policy wonk, but lacked the moxie to really pull it off. Instead he was happy just to bring some pork home to his district, cut ribbons on a few new buildings, and call it good. Doesn't surprise me for a minute that he got suckered into co-sponsoring a 'Trojan Horse' bill that ended up destroying much of our economy. He'd never see it coming.

    LaFalce was one of many sincere legislators victimized when Bill Clinton chose to throw Congressional Democrats to the wolves. He lost his committee seat, then was deliberately gerrymandered into the same district with a much more charismatic Democrat (Louise Slaughter). He chose to retire rather than fight it out with a fellow Democrat in a degrading primary.

  •  Nice work -- (2+ / 0-)
    Recommended by:
    Stwriley, chocolate cliffs

    However, these sections don't appear to be related to the current financial meltdown.  However, wouldn't put it past the Wall St. wannabe-techno-geeks from thinking that their esoteric new products were futures.  

    What FDR giveth; GWB taketh away.

    by Marie on Wed Sep 24, 2008 at 06:34:25 PM PDT

  •  Thanks for the hard work of pulling this together (1+ / 0-)
    Recommended by:
    cfk
  •  I discovered your diary after the 24 (2+ / 0-)

    hour period, so I couldn't rec or tip. Thanks for taking the time to diary this. I look forward to future diaries from you.

    Foreclosures are approaching 10,000 a day. Source MBA

    by khloemi on Thu Sep 25, 2008 at 09:00:40 PM PDT

  •  Well-researched (2+ / 0-)

    I'm curious about the Enron connection.  

    I'm bookmarking and coming back later.  If anyone can make a "Schoolhouse Rock" version in the meantime, thanks.

  •  Hotlisted, thanks for the good work (1+ / 0-)
    Recommended by:
    FundaMental Transformation
  •  wish I could rec this diary but its to late (2+ / 0-)

    it SHOULD have gotten more attention....

    maybe you can do so edits or a little rewriting and be allowed to REPOST IT over the week-end ?

    anyway GREAT JOB of explaining how we got stuck with the enron loophole, I knew SOME of the story but now I think I know most of it.  thanks

    McCain's MILLIONAIRE MENTALITY cannot help average hard working Americans!!

    by KnotIookin on Thu Sep 25, 2008 at 09:17:46 PM PDT

  •  Did McCain vote for this? (1+ / 0-)
    Recommended by:
    FundaMental Transformation

    What was McCain's roll in this whole thing does anyone know - besides being Gramms buddy

    PP_290_McPinocchio

    I am Dyslexic, it is a battle (which I often lose) to write without error. Thanks in advance for putting up with my mistakes

    by jmorton on Thu Sep 25, 2008 at 09:32:29 PM PDT

    •  Nobody voted specifically on this part (0+ / 0-)

      They didn't even know it was there.

      I diaried this subject yesterday, and I hope people keep diarying it. We need this law repealed, period.

      The big issue: CFMA = no oversight of derivatives = endless bailouts

      I think this section is key to the issue:

      SEC. 407. EXCLUSION OF COVERED SWAP AGREEMENTS.

      No provision of the Commodity Exchange Act (other than section 5b of such Act with respect to the clearing of covered swap agreements) shall apply to, and the Commodity Futures Trading Commission shall not exercise regulatory authority with respect to, a covered swap agreement offered, entered into, or provided by a bank.

      "In the end we will remember not the words of our enemies, but the silence of our friends." MLK, changed to this during the 2008 FISA fight

      by bewert on Fri Sep 26, 2008 at 04:07:42 PM PDT

      [ Parent ]

  •  Enron Shenanigans Happened in 2000 (1+ / 0-)
    Recommended by:
    ybruti

    I clearly remember the summer of 2000 being all screwed up by the fake energy crisis in California-- I was there, paying double and triple sized electric bills. I remember also thinking at the time that it was a deliberate action to trash the economy of California, and by extension, the USA.

    But that was Summer of 2000; this got passed the following winter. Enron was enabled by something else. This clearly enables the CDOs and derivatives that the mega-banks got themselves into this mess with.

    A really useful thing would be if someone could find the original text of the acts of 1933 and 1934, and show how Section 208 changes them (like with struck-out old text, colored new text, and such).

    When Dick Cheney smiles, beware...

    by Dean Nut on Thu Sep 25, 2008 at 09:42:11 PM PDT

  •  another piece of the puzzle (0+ / 0-)

    but there are a lot more pieces than this one....not the least of which is a tax system that is more corrupt than the politics that uses it to control the masses....

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