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....
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.....