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This might seem somewhat wonkish to a few here. But it is the underlying issue to what ails the credit markets today.

The elephant in the room that I have seen no one on either side address in this MoFo of All Bailouts.

And it must be addressed, because otherwise we are just pissing in the wind with at least $700 billion of taxpayer money.

It's called the Commodity Futures Modernization Act of 2000. It was inserted into the last major funding bill of Clinton's last term, without public debate or acknowledgement of any kind.

The amazing part is that it totally deregulates the largest market in history. The $70 trillion credit default swap scam.

I'll try to keep it simple. It's really important.

This huge crisis basically comes down to loans not being paid.

The part no one is talking about is how it got this far. The slicing and dicing of loans, and the selling of packages of these loans.

But, most importantly, the insurance, the guarantee, that these packages of loans ultmately would be paid.

This was based on credit default swaps.

A financial instrument that barely existed before a critical law was passed at the end of Clinton's term. This act is called the Commodity Futures Modernization Act of 2000. It was introduced on the floor, never debated and ultimately inserted as language in a huge government funding bill. Number five of the Consolidated Appropriations Act. With absolutely zero public debate or discussion.

It was the bill that brought us the Enron loophole. It also brought this:


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.

That bolded line is absolutely huge.

And it led to our current crisis. Even though just two years ago this glowing testimony was presented to the Fed Board:

..The Federal Reserve Board believes that the CFMA has unquestionably been a successful piece of legislation. Most important, as recommended by the President's Working Group on Financial Markets in its 1999 report, it excluded transactions between institutions and other eligible counterparties in over-the-counter financial derivatives and foreign currency from regulation under the Commodity Exchange Act (CEA). As the Working Group argued, regulation of such transactions under the CEA was unnecessary to achieve the act's principal objectives of deterring market manipulation and protecting investors. Such transactions are not readily susceptible to manipulation and eligible counterparties can and should be expected to protect themselves against fraud and counterparty credit losses. Exclusion of these transactions resolved long-standing concerns that a court might find that the CEA applied to these transactions, thereby making them legally unenforceable. At the same time, the CFMA modernized the regulation of U.S. futures exchanges, replacing a one-size-fits-all approach to regulation with an approach that recognizes that the regulatory regime necessary and appropriate to achieve the objectives of the CEA depends on the nature of the underlying assets traded and the capabilities of market participants. Together, these provisions of the CFMA have made our financial system and our economy more flexible and resilient by facilitating the transfer and dispersion of risk. Consequently, the Board believes that major amendments to the regulatory framework established by the CFMA are unnecessary and unwise.

These are the very same people who are now coming before us and demanding hundreds of billions of our taxpayer dollars to make them whole. Even after receiving tens of millions in bonuses just two years ago.

Bonuses. For what? For fucking us over?

It must repealed as a condition to any Wall St. bailout. It must. Period.

Or we will be back to where we are, poorer than now.

Why? Because the CFMA specifically precludes any regulation of derivatives, including all those credit default swaps. Those nebulous pieces of paper that purport to link and enfold many other pieces of paper that are commitments to repay debt.

This market may have reached over $70 trillion dollars since 2000, an amount larger than the GDP of the entire world. (Since it's not regulated, numbers are opaque)

Imagine that--the worlds largest market, completely unregulated, made up of paper promises, with absolutely no oversight. And it has  brung our financial system to its knees, just two years after Wall St. shared hundreds of millions in bonuses.

And now they want our tax dollars to bail them out. Without fixing the real problem.

Without even mentioning it.

That is evil.

Help me bring evil into the light of public discourse.

Tell every one about the CFMA, the rule against any oversight of derivatives created by Wall St., the secret law stuck onto the last Clinton budget bill in the dark.

And remember, if the Dow is up by hundreds of points, there is capital available. It's buying those stocks.

Please help stop the last BushCo ripoff.

Originally posted to bewert on Thu Sep 25, 2008 at 04:36 PM PDT.

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Comment Preferences

  •  Tips (11+ / 0-)

    And hints on how to tell this story even better.

    "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 Thu Sep 25, 2008 at 04:36:43 PM PDT

  •  Signed by Clinton.... (0+ / 0-)

    and a Bushco ripoff.  

    Does that other party share a tiny bit of the blame?

  •  Hints (3+ / 0-)
    Recommended by:
    bewert, Eloise, jlms qkw

    I've been pushing these two 40 minute radio programs from NPR's Fresh Air. The first is from last April, the second from 9/17/08.

    Our Confusing Economy, Explained

    Was Adult Supervision Needed on Wall St.

    The man interviewed knows what he is talking about, having worked in the area, and he is very clear that this was gambling and in fact unregulated, unbacked up, insurance policies.

    I keep explaining this whole thing to anyone who will listen as an insurance fraud of mythic proportions.  I show them how the unregulated Derivative market is larger than the regulated markets - the mortgage, the stock, and the securities - combined.  And remind them that we cannot even buy these Derivative instruments.

    I've heard a good analogy to use is to say it's like you could buy an insurance policy on your neighbor's house.  So if it burns down you'd get the full value of it.

    I just keep saying in conversations that it's not the foreclosures, it's the Derivative Market.  Noone knows what I'm talking about - but I just shoot in the important parts before the conversations turns to who'se on Dancing With the Stars that night.

    •  Does it drive you crazy, like me? n/t (1+ / 0-)
      Recommended by:
      jlms qkw

      "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 Thu Sep 25, 2008 at 09:12:58 PM PDT

      [ Parent ]

      •  yes..... (2+ / 0-)
        Recommended by:
        bewert, jlms qkw

        Ever since I heard that program back in April, and then watching things unfold, knowing that probably 95% of the regular people have no clue about it - it has been driving me crazy!

        I hear them blame the people for taking out too big, too risky loans - when you know there was a lot of fraud going on.  And now they're blaming the accountants too (FASB) for the mark to market rules.


        And this bit them in the butt, and came out of left-field as much as "noone thought the levees would break" and "noone could imagine terrorists flying planes into the Towers".  Yeah right.  

  •  thanks for the info (1+ / 0-)
    Recommended by:

    good stuff.

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