Sunday, March 30, 2008

The Invisible Hand ... of Phil and Bill!

From "What Created This Monster?" , an examination of the Bear Stearns bailout and "the private trading of complex instruments that lurk in the financial shadows ...," by Nelson D. Schwartz and Julie Creswell, the New York Times, March 23:
A milestone in the deregulation [of derivatives] effort came in the fall of 2000, when a lame-duck session of Congress passed a little-noticed piece of legislation called the Commodity Futures Modernization Act. The bill effectively kept much of the market for derivatives and other exotic instruments off-limits to agencies that regulate more conventional assets like stocks, bonds and futures contracts.

Supported by Phil Gramm, then a Republican senator from Texas and chairman of the Senate Banking Committee, the legislation was a 262-page amendment to a far larger appropriations bill. It was signed into law by President Bill Clinton that December.

Mr. Gramm, now the vice chairman of UBS, the Swiss investment banking giant, was unavailable for comment. (UBS has recently seen its fortunes hammered by ill-considered derivative investments.)

"I don’t believe anybody understood the significance of this,” says Mr. Greenberger [Michael, a former senior regulator at the Commodity Futures Trading Commission], describing the bill’s impact.

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