Monday, May 10, 2010

What is the Commodity Futures Modernization Act?

think the Commodity Futures Modernization Act, slipped through congress without debate in December 2000, that unleashed credit default swaps on a defenseless world.

The Commodity Futures Modernization Act was passed by Congress and signed into law by President Bill Clinton in December 2000. It was an attempt to solve a dispute between the Securities Exchange Commission (SEC) and the Commodities Futures Trading Commission (CFTC) that arose in the early 1980s. At that time, Congress had enacted legislation to expand the scope of what was defined as a commodity. This resulted in some overlap between the regulatory scope of the SEC and the CFTC.

Author/Sponsor-Mark Brickell, he was one of the central characters in ISDA, the International Swaps and Derivatives Association. He was a vehement opponent of Jim Leitch, who was one of the leaders in favor of regulating derivatives. Mark also engineered a very interesting lobbying campaign targeting the media, in particular the Wall Street Journal, and ISDA, this trade group, insisted that the Wall Street Journal not even use the word derivatives. And I found this correspondence in which the Wall Street Journal was praised over a period of time when it gave up on the word derivatives because it sounds so inflammatory - it sounded inflammatory at the time – and they started calling them things like securities instead of derivatives, and - and that won the praise from ISDA and Mark Brickell.

You might want to read Frank Partnoy’s 1997 Wall Street memoir, “Fiasco,” about derivatives.

I understand (R)Phil Gramm & (R)Dick Luger sponsored bill. Interestingly Phil Gramm's wife Wendy sat on Enron's board (also held job in DC, I think the FTC). So the Republicans aren't innocent bystanders in this financial debacle. Dick Lugar is still in the Senate - I'm amazed that he can look American's in the eye when he is responsible for writing this devastating legislation.

A Nation of Village Idiots

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