[asa] Deregulation Madness was Re: Ben Stein on Sub Prime Mortage Crisis...

From: Rich Blinne <rich.blinne@gmail.com>
Date: Sun Dec 07 2008 - 22:56:35 EST

On Dec 7, 2008, at 6:53 PM, Lynn Walker wrote:

> On Sun, Dec 7, 2008 at 7:26 PM, John Walley <john_walley@yahoo.com>
> wrote:
> See Ben Stein dismiss the mortgage crisis and hype the financial
> sector last year in this video 4:28 and 6:30. In case there was any
> doubt about him being a buffoon before this out to clench it.
> John
> http://www.youtube.com/watch?v=2I0QN-FYkpw&feature=related
> Speaking of real buffoons:
> They were warned. http://www.youtube.com/watch?v=LPSDnGMzIdo&feature=related
> Who's responsible? http://www.youtube.com/watch?v=aQARWFIw6Z4&feature=related
> In their own words. http://www.youtube.com/watch?v=_MGT_cSi7Rs&feature=related
> Lynn

In defense of Ben Stein, he has learned from some of his mistakes,
namely that deregulation has been a collosal failure. First some
history of the deregulation disaster promoted by both parties in the
last decade, albeit mostly by one.
The Commodity Futures Modernization Act of 2000 did at least two
things. It allowed the now infamous credit default swaps to be sold in
so-called "dark markets" and it also introduced the so-called Enron
Loophole. Back in 2002 McCain was the only member of his party who
voted for cloture on the Feinstein amendment that would regulate the
energy market. Phil Gramm voted the other way. What happened to this
John McCain? In 2005, Gramm joined his campaign as an economic advisor.
> The New York Times in 2002 chronicled Gramm's shepherding of the
> Commodity Futures Modernization Act which was part of an omnibus
> spending bill.
> On. Sept. 14, 2000, before the House vote, Mr. Lay wrote to
> important House members, including Speaker J. Dennis Hastert, urging
> enactment of the bill. Mr. Lay's letter told lawmakers that ''this
> important legislation provides critical legal certainty for a range
> of transactions that are a central part of Enron's risk management
> and commodity trading business.''
> Enron's interest was twofold, officials said. One was ensuring
> regulatory freedom for Enron Online, a so-called bilateral platform,
> in which Enron was the other party at the end of every transaction.
> Enron also wanted minimal oversight over another trading form that
> could become part of its future business, multilateral platforms,
> where many parties traded. In the end, the bill totally exempted
> bilateral platforms and partially exempted multilateral platforms, a
> compromise Mr. Lay supported in his letter.
> ...
> But in the Senate, the bill faced a formidable roadblock in Mr.
> Gramm. The Banking Committee, of which Mr. Gramm was chairman, was
> one of the panels with jurisdiction over the bill, but the
> Agriculture Committee handled the section containing the energy
> exemption. When Congress went into recess in October for the
> elections, the bill's supporters thought it was dead.
> ''Gramm's hold was everything,'' said one person involved in
> drafting the bill.
> Mr. Neal, Mr. Gramm's press secretary, said, ''Senator Gramm held
> the bill from September through Dec. 13, when an agreement with
> Treasury Secretary Larry Summers was reached on the banking issues''
> that had prompted the hold. One of Mr. Gramm's concerns was a clear
> line of jurisdiction between bank regulators and the commission over
> financial products that could be developed by banks and other
> financial institutions.
> As for the energy provision, Senator Gramm ''did not write,
> negotiate or modify'' it, Mr. Neal said. On the question of Mr.
> Lay's concerns about the bill, Mr. Neal said Senator Gramm was aware
> of Mr. Lay's letter to Mr. Hastert.

As for Gramm's lack of knowledge, that was contradicted by an Enron
internal e-mail. Note why Gramm blocked it above (in bold according to
his press secretary) and the reference to it in the e-mail below.

> CFTC Reauthorization
> From: Steven Kean
> To: Chris Long , Richard Shapiro
> Sent: 14/08/2000 at 09:54
> Please go ahead with preparation of the talking points. I'll give
> Ken a heads up.
> ---------------------- Forwarded by Steven J Kean/HOU/EES on
> 08/14/2000 08:52 AM ---------------------------
> Richard Shapiro
> 08/10/2000 06:11 PM
> To: Steven J Kean/HOU/EES@EES
> cc: Chris Long/Corp/Enron@ENRON
> Subject: CFTC Reauthorization
> I agree w/ chris's recommendation- you too?
> ---------------------- Forwarded by Richard Shapiro/HOU/EES on
> 08/10/2000 06:10 PM ---------------------------
> Chris Long@ENRON
> 08/10/2000 05:12 PM
> To: Mark E Haedicke/HOU/ECT@ECT, Steven J Kean/HOU/EES@EES, Richard
> Shapiro/HOU/EES@EES, Mark Taylor/HOU/ECT@ECT, Joe Hillings/Corp/
> Enron@ENRON,
> Cynthia Sandherr/Corp/Enron@ENRON, Tom Briggs/NA/Enron@Enron
> cc: raislerk@sullcrom.com, Allison Navin/Corp/Enron@ENRON
> Subject: CFTC Reauthorization
> At his request, I met Lee Sachs, Assistant Treasury Secretary, who
> had requested the meeting after a brief conversation recently. Lee
> said that senior-level negotiations led by Secretary Summers were
> initiated last week between the CFTC and SEC and that progress was
> being made on the single stock futures issue (the major issue
> postponing movement of the legislation).
> As you know, the House completed committee work on HR 4541 before it
> recessed. The bill will now is pending before the Rules Committee
> where differences will be worked out between the three different
> Committee versions (Agriculture, Commerce, and Banking). The Senate
> Agriculture Committee passed out the Senate version in July.
> However, the bill is not moving quickly in the Senate due to Senator
> Phil Gramm's desire to see significant changes made to the
> legislation (not directly related to our energy language). Last week
> at the R epublican Convention, I asked the Senator about the bill
> and he said they were working on it, but much needs to be changed
> for his support. More telling perhaps, were Wendy Gramm's comments
> that she would rather the current bill die if a better bill can be
> passed next year. What this means is that we must, at the least,
> remove Senator Gramm's opposition to the bill to move the process
> and more importantly seek to gain his support of the legislation.
> Lee Sachs message was just that. I told Lee that we shared his
> desire to move the legislation as long as it contains a full
> exclusion for all non-agriculture commodities (including metals). He
> said that we would have a difficult time defending the metals
> provision politically. But, Lee said "we would not find Treasury
> opposition to the House Commerce Committee language" (which
> includes favourable language on energy and metals). This is a
> positive development, because it isolates the CFTC from its key
> defenders and I hope ensures no veto threat on our issues. However,
> I do not expect Treasury to be vocal in support of our position. It
> is clear that Congressional leaders and the Administration want to
> get this bill done this year and there remains a good opportunity
> for enactment.
> However, with less than 20 or so legislative days left, we need
> Senator Gramm to engage. A call from Ken Lay in the next two weeks
> to Senator Gramm could be an impetus for Gramm to move his staff to
> resolve the differences. Gramm needs to fully understand how helpful
> the bill is to Enron. Let me know your thoughts on this approach. I
> am prepared to assist in coordinating the call and drafting the
> talking points for a Ken Lay/Sen. Gramm call.

But what does this have to do with McCain? Note this February piece in
Fortune that asks that very question:
> Now that the faltering economy has replaced national security as the
> overriding issue in the presidential campaign, John McCain is
> portraying himself as a budget-shrinking, flat-tax-embracing,
> healthcare-privatizing champion of free markets. But is this
> Reaganesque zealot the real John McCain?
> The big question is whether McCain's radical agenda is simply
> designed to rally the R epublican base, or would prove a blueprint
> for a McCain presidency. Given the Arizona Senator's maverick
> record, voters have every reason to distrust the new McCain. ...
> But economic conservatives should take heart. McCain's chief
> economic adviser - and perhaps his closest political friend - is the
> ultimate pure play in free market faith, former Texas Senator Phil
> Gramm. If McCain follows Gramm's counsel, and most of his current
> positions are vintage Gramm indeed ...

So, which was the real John McCain? The free market true believer of
the primary or the maverick of the general election? We do have a test
and that's the farm bill from May.
Note Jason Leopold's commentary about the linkage between his
opposition to it and his anti-regulatory views of 2008.
> A McCain aide told me that the Arizona senator opposes the farm bill
> because it “rewards lobbyists” by granting rich farmers lucrative
> subsidies, although he would support “a reasonable level of
> assistance and risk management to farmers when they need America's
> help.”
> But the aide, who spoke on condition of anonymity, acknowledged that
> the presumptive R epublican presidential nominee also opposes the
> farm bill because Gramm advised McCain that he should resist its
> regulatory language on the energy futures market.

The Enron debacle was caused by the same kind of deregulation that is
killing our economy today. Both incidents were caused by the very same
bill promoted by Phil Gramm. Phil Gramm is also author of Gramm Leach
Bliley which established the investment banks without the reserve
requirements of commercial banks. It is true that much blame to go
around because both parties promoted deregulation.
The real question have people learned from their mistakes. The answer
except for a rapidly dwindling group of people is yes. In a recent NY
Times op ed Ben Stein noted that a number of people who in his opinion
who were too close to the deregulatory mistakes of the past:

> [Geithner’s] the pre-eminent careerist of old-time finance, and a
> basic part of the team that got us into this mess. He was pro-
> deregulation for most of his career.

However last June Geithner learned his lesson:
> Geithner also said the current financial crisis has demonstrated
> that U.S. regulation needs substantial reform from its current
> confusing mix.
> The reforms should be accompanied by global initiatives to make the
> financial architecture stronger across borders and better able to
> respond to crises that affect financial institutions far and wide,
> he said.
> "The most fundamental reform that is necessary is for all
> institutions that play a central role in money and funding markets
> -- including the major globally active banks and investment banks --
> to operate under a unified framework that provides a stronger form
> of consolidated supervision, with appropriate requirements for
> capital and liquidity," Geithner said in his prepared remarks.
Barney Frank said this in July:

> It's really been a test of regulation...and conscious decision
> brought by Alan Greenspan, who is the arch de-regulator. Because in
> 1994, not coincidently the last time the D emocrats had a
> congressional majority before this year, a bill was passed that was
> called the Home Owner Equity Protection Act, that said to the
> Federal Reserve, 'Look, we know have loans being made by non-
> regulated entities so please pass some rules. We give you the
> statutory authority to pass the rules to contain their activity and
> make it more responsible'. Alan Greenspan said, 'oh no, that's
> interfering with the market, I can't do that.' He didn't do it;
> that's where the crisis came. Fed Chair Ben Bernanke, to his credit,
> on Monday of this week finally used that authority, but if Greenspan
> had done 10 years ago what Bernanke did on Monday, we wouldn't be in
> nearly as bad as a situation.

The bottom line is the deregulation madness that caused this recession/
depression is over and most people now are not like Phil "mental
recession" Gramm. John McCain stressed his "born again" regulation
position during the general election. Chris Cox, the current chairman
of the SEC, wrote an op-ed in the NY Times stating that self-
regulation was a dismal failure. Alan Greenspan stated last month that
he made a "mistake" with respect letting companies regulate themselves.

> “Do you feel that your ideology pushed you to make decisions that
> you wish you had not made?”
> Mr. Greenspan conceded: “Yes, I’ve found a flaw. I don’t know how
> significant or permanent it is. But I’ve been very distressed by
> that fact.”
> He continued, “The evidence strongly suggests that without the
> excess demand from [the unregulated] securitizers, subprime mortgage
> originations would have been far smaller and defaults accordingly
> far lower."

Even of all people Ben Stein has learned, but have the disciples of
deregulation followed his lead? The parallels with the 1930s are
uncanny, particularly the dismantling of the regulatory protections of
the 1930s that have been systematically been eliminated since the
1980s. As I have said before this is the same deregulation madness
that is behind climate change denialism. Whether it's the climate or
the economy, deregulation equals destruction.

Rich Blinne

Member ASA

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Received on Sun Dec 7 22:57:26 2008

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