How Congress caused the financial crisis

It is unfortunate, in my opinion, that congress can not be held responsible for what would otherwise be considered a criminally negligent act if they were not exempt from prosecution for their own stupidity. I am, of course, referring to H.R. 4577, The Commodity Futures Modernization Act of 2 000. Incorporated into H.R. 4577, the Consolidated Appropriations Act, 2001, which was passed by the 106th United States Congress and signed by President Bill Clinton on his way out in December 21, 2000.

This monumental act of stupidity was the key instrument which allowed the financial industry to run rampant with credit default swaps, a transaction that was specifically made illegal by prior congressional act (The Commodity Exchange Act of 1936). However, the 106th congress not only saw fit to amend the previous act and allow credit default swaps, but, to add insult to injury, also banned States from preventing these highly dubious transactions. Here is an excerpt from that law:

SEC. 117. PREEMPTION. HR 5660
This Act shall supersede and preempt the application of any State or local law that prohibits or regulates gaming or the operation of bucket shops.

It should come as no ones surprise that the majority of the financial pressure for the passage of this bill came from the Financial, Insurance and Real Estate Lobby (FIRE). (Don’t get me started on the ethics of the real estate lobby, I’ll save that for another time.) Flip-Flopping Phil Gramm (Democratic Congressman (1978–1983), a Republican Congressman (1983–1985) and a Republican Senator from Texas (1985–2002) received over $4.6 million over a ten year period towards the passage of this bill. CEO Sandy Weill of Citibank spent $12 million lobbying towards deregulation of Glass-Steagall between 1998 and 2000.

In case you were unaware, the second Glass-Steagall Act was passed in 1933 in reaction to the collapse of a large portion of the American commercial banking system in early 1933. However, once again, it was our old friend Phil Gramm working for the banking industry, instead of his constituents, who introduced the bill to repeal Glass-Steagall. This new bill allowed banks to merge with insurance companies and investment houses. 'The Financial Modernization Act, alternatively known as the Gramm Leach Bliley bill was lionized by its proponents, including senior staff in the Clinton administration and many now staffing President Obama, as the most important breakthrough in the worlds of finance and politics in decades!

Senator Bill Dorgan, Democrat from North Dakota, was one of only eight senators who voted against the bill, warning that the banks would become "too big to fail" which has proven to be an amazingly accurate prediction in the wake of the current financial crisis. This was back in 1999 and he seems to have made an eerily accurate prediction when he said then that Congress would "look back in ten years time and say we should NOT have done this." Senator Paul Wellstone (D. Minnesota) also opposed the bill, warning at the time that Congress was "about to repeal the economic stabilizer without putting any comparable safeguard in its place." Edward Kane, a finance professor at Boston College, warned that "nobody will be able to discipline a Citigroup" once the legislation passed, because the banks would be too big and the issues too complex.

Addendum: According to an article in The New York Times for Monday September 28, due to the mess that Congress created, The FDIC has already had to close 95 banks in 2009 as compared to only 25 in all of 2008.

Addendum2: On a related topic, The NY Times  for Friday September 25, 2009 ran an article titled: FDA Reveals It Fell to a Push By Lawmakers about how the drug lobby influenced mebers of congress and other lawmakers from the state of New Jersey to pressure the FDA to change their decsion not to approve a medical device they considered unnecessary. This is yet another example of how politicians serve the lobbyists that giv them money instead of the constituency that elected them. Shame on them!

References: The Huffington Post

And also at Govtrack.us

And Also: Library Of Congress/Thomas

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If the opposite of pro is con then the opposite of PROgress must be CONgress....

Riddle: What's the difference between Bernie Madoff and Alan Greenspan?
Answer: Bernie knew what he was doing!