Hmmm, wonder if anyone is free to help out on some research

[TayTay]

I have been looking up some info on the banking crisis, predatory lending and so forth.

In short I was wondering if people might like to look up something online and in online newspapers.

In Feb/March of 2005, the US Senate considered and passed a truly odious bankruptcy "reform" bill. There are 2 things in it I would like more info on.

1. The provision that allowed for people with two or more homes to exempt those dwellings from bankruptcy proceedings. This http://www.nytimes.com/2005/03/02/business/02bankrupt.html?scp=1&sq=McCain%20Mortgage%20bankruptcy%20loophole&st=cse">NYTimes report from March 2005 explains what happened.

John McCain voted for that bill (S. 256 ) Anything by him in the record on the "Asset protection trusts" which is the vehicle designed to shield the assets of the rich from bankruptcy?

2. http://www.senate.gov/legislative/LIS/roll_call_lists/roll_call_vote_cfm.cfm?congress=109&session=1&vote=00022">S.Amdt 38 in that same bill. "To discourage predatory lending practices"
Guess who voted against this amendment? Yup, the Senior Senator from Arizona. Again, anything in the news on this? Seems to me that John MCCain is trying to say that he was for reigning in Fannie and Freddie, yet certainly did not vote that way.

As ever, thank you.

[TayTay]

1. Another curious vote from that 2005 bankruptcy bill

This came up in the VP debate last night. Sarah Palin said that Sen. McCain was NOT in favor of exempting trusts that hold 2nd, 3rd, 4th and so forth homes from bankruptcy protection.
Well, Senator McCain voted to protect millionaire trusts from bankruptcy court proceedings and repeatedly voted that people with much lower income be subject to the full force of the law.

Case in point is this http://www.senate.gov/legislative/LIS/roll_call_lists/roll_call_vote_cfm.cfm?congress=109&session=1&vote=00023">vote in the Senate:

This is the transcript on what was going on with this amendment:


BANKRUPTCY ABUSE PREVENTION AND CONSUMER PROTECTION ACT OF 2005 -- (Senate - March 03, 2005)

Mr. SCHUMER. Mr. President, I ask unanimous consent to temporarily set aside the pending amendments to offer an amendment.

The PRESIDING OFFICER. Without objection, it is so ordered.

AMENDMENT NO. 42

Mr. SCHUMER. The amendment is at the desk. I ask for its immediate consideration.

The PRESIDING OFFICER. The clerk will report the amendment.

The assistant legislative clerk read as follows:

The Senator from New York , for himself, Mr. Bingaman, Mr. Durbin, and Mrs. Feinstein, proposes an amendment numbered 42.

Mr. SCHUMER. I ask unanimous consent the reading of the amendment be dispensed with.

The PRESIDING OFFICER. Without objection, it is so ordered.

The amendment is as follows:
(Purpose: To limit the exemption for asset protection trusts)

On page 205, between lines 16 and 17, insert the following:

SEC. 332. ASSET PROTECTION TRUSTS.

Section 548 of title 11, United States Code, as amended by this Act, is further amended by adding at the end the following:

``(e) The trustee may avoid a transfer of an interest of the debtor in property made by an individual debtor within 10 years before the date of the filing of the petition to an asset protection trust if the amount of the transfer or the aggregate amount of all transfers to the trust or to similar trusts within such 10-year period exceeds $125,000, to the extent that debtor has a beneficial interest in the trust and the debtor's beneficial interest in the trust does not become property of the estate by reason of section 541(c)(2). For purposes of this subsection, a fund or account of the kind specified in section 522(d)(12) is not an asset protection trust.''.

Mr. SCHUMER. Mr. President, I will be very brief. This amendment closes the so-called millionaires loophole. If any of you happened to read yesterday's New York Times, there is in existing law a hidden loophole which basically says if you are a millionaire and want to file a certain trust in one of five States, you can hide all your money even though you declare bankruptcy. So the irony is, in this bill, while we are talking about people who make $35,000 or $40,000 or $45,000 and we want to make sure they do not abuse bankruptcy, the law allows this abuse of bankruptcy.

The Bankruptcy Abuse Prevention and Consumer Protection Act, which I am introducing along with my colleagues Senators DURBIN, FEINSTEIN, and BINGAMAN, and I believe Senator Clinton as well, will close this loophole.

You do not have to be a resident of these five States, but you can be a millionaire or billionaire and stash away assets: mansions, racing cars, yachts, investments, in a special trust, and you can hold onto that windfall after bankruptcy. That is not fair. We will debate the amendment later this afternoon. I want to notify my colleagues and place it in order on the floor.

GPO's PDF

The amendment has been read?

The PRESIDING OFFICER. Yes, it was.

Mr. SCHUMER. It is now in order so I will yield the floor.

Mr. KENNEDY. Will the Senator yield?

Mr. SCHUMER. I am happy to.

Mr. KENNEDY. One of the concerns many of us had in this bill is the interest of fairness. I think fairness ought to be standard for any piece of legislation. As it is currently before us, we will have those who will be able, with their homestead exemption, to preserve homesteads valued at millions and millions of dollars and, on the other side, individuals will lose completely all of their savings because they will lose their homes. There is no fairness there.

The Senator from New York is pointing out in another area the issue of fairness. Those who have resources and have wealth and have the contacts will be able to shelter their resources while basically middle-income working families, the working poor who are trying to get by and have seen an explosion of different costs, on housing, on health care, on tuition, will be buried.

This will be another dramatic example where those who have it will be able to preserve it and those who have been struggling will lose it.

Mr. SCHUMER. I thank my colleague. He is exactly on point. It is outrageous that someone worth millions or billions of dollars can declare bankruptcy and then shield their assets in this trust so they do not come before the bankruptcy court. The Senator, my friend from Massachusetts, is exactly right; we are talking about people who make $45,000 and we are going after them, yet we are allowing millionaires and billionaires to use this loophole. Of course, it is not all millionaires and billionaires, it is a small number who go into bankruptcy and who abuse it. We can close it. We will debate this amendment later this afternoon, but let us hope that we do not have a lockstep, let's vote ``no'' on everything. It would be hypocritical to say we have to close abuses on middle-income people and not close abuses on the very wealthy.

I will be happy to continue to yield to my friend.

Mr. KENNEDY. I will ask a final question. A third of all the bankruptcies are among those who are earning below the poverty line. Does the Senator think they will be able to take advantage of this loophole?

Mr. SCHUMER. I would say to my colleague from Massachusetts, they can't even afford the lawyer to write the first page of the trust that these others can. Again, the question answers itself. What is good for the goose is good for the gander. What is good for someone below the poverty line certainly ought to be good for millionaires and billionaires who want to abuse the bankruptcy process.

I yield the floor in deference to my colleague from Pennsylvania.

[karynnj]

7. In addition, here is the truth about the bill she referenced twice

as McCain acting to regulate Freddie and Fannie:

McCain actually signed onto S190 on 5/26/2006. That bill was originally introduced on 1/26/2005 by Senator Hagel with Senators Sununu and Dole as co-sponsors. That bill was sent to the Republican controlled Banking committee, where it passed on 7/28/2005 but was never considered by the full Senate. McCain signed onto a bill that had been dormant for 10 months and gave that speech on the floor of the Senate. He then did nothing further to support it and no one else signed on as a co-sponsor.

Representatives Frank and Oxley supported a bi-partisan bill, sponsored by Baker, with stronger regulation of these companies (HR 1461) that passed 331 to 90 in the House on 10/26/2005. It was then referred to the Senate, where it went to the Banking Committee.
"Senate Democrats picked that bill up and offered it, but the Administration opposed that legislation. According to Mr. Oxley, the White House gave Congress and the GSE reform legislation "a one-finger salute."

* "We missed a golden opportunity that would have avoided a lot of the problems we're facing now, if we hadn't had such a firm ideological position at the White House and the Treasury and the Fed," Mr. Oxley says."
( http://www.zibb.com/article/4043921/FACT+CHECK+BUSH+ADMINISTRATION+S+TRACK+RECORD+OF+DEREGULATION - this is another good source with lots of links)

The Banking Committee considered S190 instead and it was passed out of committee, but never put up for a vote. (Here is an article that speaks of why the Democrats voted against S190 - http://www.allbusiness.com/government/532756-1.html The committee vote was 7/28/2005. So, the Republicans went with a partisan bill when the Democrats had agreed to the bi-partisan House bill - and Bush was against the Bipartisan bill.

The bill was reintroduced by Hagel, Sununu, Martinez and Dole (no McCain) on 4/12/2007 and it again went nowhere.

That speech and the co-sponsorship of a dormant bill are cited by the McCain campaign as proof of his efforts to regulate because it is the only thing they have.

So, it is technically true he did co-sponsor a bill - when it was dead - and he did give a speech in the Senate.

This is more typical of the Bush attitude on regulation.

http://www.nysun.com/business/bush-official-sees-moral-hazard-in-regulation/53364/

[Inuca]

10. I read the allbusiness article

and still cannot understand what the dem's reasons for being against were (reminder: all this financial stuff is 99.9% opaque to me). Hagel's statement seems to make sense to me, but I am sure it is only a small part of the overall picture.

"Fannie and Freddie are public companies with shareholders, and their boards have a fiduciary responsibility to those shareholders. But Congress did not create GSEs to enrich share-holders and executives," said Hagel. "They were created to provide stability and capital in the secondary housing finance market."

Karyn, if you (or anybody else for that matter) can explain in one or two sentences of plain ENglish, it would be much appreciated.

[karynnj]

11. Here's my best try

The language of the bill, in addition to trying to accomplish what Hagel said there, also had many provisions that were not to enhance the stability of the secondary housing market, but were designed to hamper or kill Democratic programs that worked to provide affordable housing. Santorum's amendment that passed is clearly that.

The other thing is that the other source says the Senate Banking Committee Democrats adopted the bipartisan House bill that overwhelmingly passed the House. From Oxley's comment, Bush did NOT want that bill to make it out of Congress. It may be that S190 was, with Hagel's blessings or not, turned into a bill that could NOT pass - so they could say that they had a bill, but the Democrats were fighting it. (The 2005 AEI article from a link in the Kathy blog suggests this - as it speaks of S190 as the Senate companion bill of H1461, ignoring that apparently the Democrats adopted the House bill itself as there bill. Neither bill was brought to a vote in the Senate. I want to get a better link that says the Democrats wanted that bill as the Factcheck one looks and is partisan. I did see the FT article online, because someone illegally posted it - (link no longer works) The article at it's original source requires paying to see it, which I would do, but it makes it a bad link to use to fight this.)

More than 2 sentences - but I am still trying to understand what really happened. The hardest thing is that there is a lot of recent stuff, where everything is "Cherry picked". So, I have been giving more credibility to vintage reports - before the consequences were known. (I may go my county library and see what financial/business magazines they have archived have and use the Guide to Periodic Literature rather than google. Then try to find the same things on line for links.)

[Inuca]

12. Thanks Karyn

it makes (a bit) more sense. My (mostly gut) feeling on all this is that there are not many hands that are completely clean in all this mess, in either party.

[karynnj]

13. I'm not sure if "clean" is the right word

I think part of it comes down to no one thinking out the potential long term consequences or the whole picture. Each side had ideological things that they would not part with - unfortunately for the Republicans, one of theirs was the belief that the less government did the better. This could explain the Gramm bill votes on the conference bill- the Democrats were happy they had saved their programs - and didn't see the danger in the repeal of Glass Segall, maybe persuaded by Clinton that it was outdated. Wrong ifn retrospect, but no corrupt or even badly motivated at the time.

Not having read both bills, it sounds like the House bill was better as it was able to get the support of the majority of people on both sides - so it was clearly a compromize and had there been no desire to prevent the President from having to veto a bill that sounded needed in the context of what was happening then. To me, it sounds like the Republican Banking Committee used S190 as a CYA. They had to know that the Santorum amendments would lose them even the Centrist Democrats. The point is that a good Republican bill would have picked up the reform minded Democrats - and they only needed 5 Democrats to make it filibuster proof. We could easily construct likely candidates for that list.

[beachmom]

14. Thank you Karynnj, for your excellent work on this. Let's try to tease

out what was happening. From what you just said, there were TWO bills to properly regulate Fannie/Freddie?

1. A House bipartisan bill that Bush did not want, keeping intact government programs Dems wanted.

2. A Senate Republican partisan bill by Hagel, co-sponsored by McCain, which killed popular Dem programs and had NOT A PRAYER of passing, but put something on the scoreboard for the GOP (and down the road for McCain)?

Am I to understand that this was a classic case of Washington being self satisfied while not doing a damned thing about a looming crisis? Frankly, I am not interested in spinning this in anyone's direction. I simply want the truth, as ugly as it may be. Were the lobbyists of Fannie/Freddie so powerful that they assured that NO BILL was going to pass to regulate or curtail what they wanted to do?

And on a political realm, if McCain wants to talk about HIS BILL that he co-sponsored, is there a Dem bill in the Senate to counteract? I mean, it is beginning to appear that this was a purely cynical move by McCain to cover his bases; he had no intention of truly fighting to get this bill passed or any bill passed to reign in Freddie/Fannie. I am just wondering if we have a CYA Dem bill within this realm of cynical politics.

[karynnj]

16. I am 100% with you on not wanting to spin this on either side

I think that 1 and 2 are accurate. Thank you for the compliment, but I, like you, am still trying to get a clear picture of what happened and don't think I have all or even most of the pieces.

It is clear that both the Fed and the Bush administration both were negligent in their primary duty to actually regulate. This NYT article puts a lot of the blame on Greenspan. http://www.nytimes.com/2007/12/18/business/18subprime.html?_r=2&pagewanted=3&oref=slogin

I suspect that both the politicians and the Wall Street people completely underestimated the danger. As long as the housing market was healthy, there was relatively little danger. Even when bad loans failed, they foreclosed and the House was worth enough that the loss on that loan didn't affect the bundled value. Only when many loans failed and the housing market had slumped, did the loses on the bad loans cause big loses to the overall bundle. The mathematics of how these derivatives were evaluated is extremely complex - long ago someone tried to explain it to me, I couldn't follow it and because I didn't need to know it, I didn't admit to it being completely over my head.

I do want to look for a "Democratic version of 4166 or at least a linkable MSM source that says the Senate Democrats on the Banking Committee advocated for the Senate passing the House bill, as is. (I can believe that if Bush didn't want a bill like the House bill - the Republicans could and would have buried it in committee. (If it happened, then in fact the S190 bill was possibly in bad faith.) (You do have to admire McCain's cynical action - it was smart, though it never had the potential to make a difference.)

The cleanest argument for the Democrats might be the Durbin bill offered many times to end predatory lending. (Freddie and Fannie are almost scapegoats - they are not the biggest problem - the problem was the shaky mortgages allowed and then allowing them to be packaged and sold as securities. It eliminated the natural deterennt to shaky mortgages - that the bank could lose money.

That moves the blame to the SEC, where Bush replaced a head, who was criticized by the Republicans for wanting too much regulation with Cox. http://news.bbc.co.uk/2/hi/business/4726413.stm Here, I am on shaky ground, as I don't know anywhere enough about derivatives and when they started to package subprime mortgages into securities.

One good argument for both Obama and Kerry has nothing to do with how we got here, but that they both called very early for renegotiating mortgages that were failing - where they could be salvaged. ( Kerry also called for prohibiting balloon mortgages in 2004.) Fixing the mortgages would have halted the build up of "bad assets" and would have spared people and communities a huge amount of pain. The Republicans fought it.

[beachmom]

18. If you want to take a mini-break from the research, watch this vid "Foreclosure Alley"

http://andrewsullivan.theatlantic.com/the_daily_dish/2008/10/memories.html

It shows in pictures the root cause of why our financial markets have crashed: the housing bubble bursting in southern California and the stunning amount of foreclosures. I found this film highly disturbing. And it also shows that this was not a "minority program" problem. It was so much bigger than any demographic. I also wonder if without sweeping radical changes, Congress couldn't have really stopped it. When a $400K house is suddenly only worth $180K, what exactly can you do?

[beachmom]

15. This link is worth taking a look at:

http://iarnuocon.newsvine.com/_news/2008/10/01/1940028-the-republican-roots-of-the-subprime-crisis

Additionally, there are a lot of claims that the Republicans attempted to push through legislation requiring oversight of the subprime market, and that Democrats stymied the bill. A corollary to that claim is that McCain cosponsored the legislation, and sounded the clarion bell on the impending crisis. We should take a moment to evaluate both claims.

The Federal Housing Enterprise Regulatory Reform Act of 2005 (S190) was introduced in the Senate on Jan 26, 2005, sponsored by Chuck Hagel and co-sponsored by Elizabeth Dole and John Sununu. John McCain was not a co-sponsor at that time. After some discussion in the Republican-controlled committee, the bill was tabled for revision. In other words, in a Republican controlled Congress, in a Republican controlled committee, the bill died, and was never reconsidered.

17 months later, the Office of Federal Housing Enterprise Oversight (OFHEO) issued the results of their 27 month long investigation of Fannie Mae. It was widely reported and was scathing in its criticism of Fannie Mae. News reports picked up the criticism the following day. The day after that, May 25, 2006, John McCain (in an act of "prescience") regurgitated some of the findings of the report, and signed on as a co-sponsor to the defunct bill. That's the last McCain talked about reforming Freddie Mac and Fannie Mae.

And what would the reform instituted by S190 have consisted of? S190 would have been reconciled with the almost identical HR1461 before being enacted, if it had become law. What would that have meant? S190 was the stronger of the two bills, but in reconciliation with HR1461, it's entirely possible that the result would have been a weakening of regulatory oversight of Fannie Mae and Freddie Mac.

Nevertheless, as the American Enterprise Institute noted:

The bill that emerged from the Senate Banking Committee is exactly what the White House wants, and it is doubtful that this administration--and this particularly determined president--will let the opportunity pass. An administration that has gained some measure of tort reform, approval of the Central American Free Trade Agreement, bankruptcy reform, and an energy bill--none of which received significant bipartisan support--is unlikely to shrink from pushing through Congress a bill that achieves one of its most important government reform priorities.

...After the administration and the Fed have declared that the GSEs’ portfolios are a dangerous source of taxpayer and systemic risk, the administration can hardly do nothing if Congress fails to act. In this respect, the administration always has a card to play--it can always use the Treasury’s authority to restrict the GSEs’ issuance of debt. The GSEs must realize this and must see that the only effective way to prevent the use of this authority in a wholesale manner is to reach a legislative compromise of some kind.

Sadly, the AEI was absolutely incorrect on this. The White House refused to press the issue, and the bill was allowed to die in committee, despite Republican control of its fate.

S190 was resurrected in the 110th Congress by Chuck Hagel as S1100. Co sponsoring the bill were Sen. Elizabeth Dole , Sen. Mel Martinez , and Sen. John Sununu . S1100 was introduced on April 12, 2007.

John McCain did not support S1100, nor has he (before or since) introduced any legislation to address the issue.

So let's have the rundown, here.




* Were the Republicans responsible for (and did John McCain vote for) the Gramm-Leach-Bliley Act that allowed this deregulation that created this problem, way back in 1999? Yes.

* Does John McCain currently have Phil Gramm serving as his economic adviser on his campaign? Again, yes.

* Did the Republicans, in control of sending S190 to the floor of the Senate for a vote, fail to do so? Yes.

* Did the White House, putatively desiring to see the risks of Fannie Mae and Freddie Mac ameliorated, fail to take action when comprehensive regulatory legislation failed to emerge from Congress? Yes.

* Did McCain support reform of Fannie Mae and Freddie Mac? Not in any way that mattered, and certainly not when it would have done any good.

* Did McCain presciently predict problems with either GSE? Nope. He simply regurgitated the findings of the report created by the OFHEO.

* Given a second opportunity in the current Congress to address reforming either Fannie Mae or Freddie Mac, did McCain act or even speak toward convincing his compatriots to assert more regulation in order to avoid disaster? Clearly not.

So basically, the reason McCain co-sponsored that bill was due to a report that came out.

http://www.nytimes.com/2006/05/24/business/24fannie.html?_r=3&scp=2&sq=may%2024%202006&st=cse&oref=slogin&oref=slogin&oref=slogin

Only AFTER this report hit the NYT, did McCain co-sponsor. Although if you look at the report this is about accounting practises, not sub-prime loans. Am I right on that?

Hmmm ... Karen this is what the NYT says:

Ofheo's findings could also provide a jolt of momentum for new laws sharply limiting Fannie Mae's mortgage portfolio holdings and could create a tougher regulatory environment for all government-sponsored enterprises — a position the Bush administration strongly supports.

A Treasury under secretary, Randal Quarles, said: "The portfolios grew to their present size as a result of earnings and earnings management, not as a result of their public mission" to promote low-income housing. If anything, this underscores the need for a comprehensive legislative solution and one that empowers the regulator by not just giving it authority, but a clear legislative mandate."

In July, the Senate Banking Committee approved a tough measure on a party-line vote while the House passed a less restrictive bill late last year. Now, with time running out on this year's Congressional calendar, the prospects for passing new legislation are dimming.

What is being inferred by this article is that the Hagel bill is better, and was supported by the Bush admin. I have read this elsewhere. Again, why did Democrats vote against the Hagel bill in the Banking committee? This is the root cause of the hit piece on Democrats and propping up McCain. I still don't get it.

[karynnj]

22. Here's a NYT article that has a more complete comparison of the two bills

http://www.nytimes.com/2005/10/27/business/27fannie.html?_r=1&scp=6&sq=House%20regulation%20bill%202005%20&st=cse&oref=slogin

It confirms some of what you say here - the Senate bill would have reduced Freddie's and Fannie's portfolios - and it does warn of the trouble in case they got into financial trouble. It does show affordable housing issues were part of the Democratic objections. (So, it is very possible that had it gone to the entire Senate, it would not have been supported by many Democrats.)

Here is the article from when the Senate bill passed committee - even then it was noted that reconciliation with the House would be difficult. Here is an earlier bill that has less detail, but explicitly speaks of a Democratic alternative. The Democratic plan sounds like the one the House later passed. http://www.nytimes.com/2005/07/29/business/29fannie.html?scp=8&sq=2005%20House%20banking%20regulatory%20oversight%20Senate%20Democrats&st=cse
(I noticed that the NYT used a Bloomberg News article here.)

Two Interesting articles on the Clinton appointee who oversaw Freddie and Fannie - interesting point was that Bush had yet to nominate a replacement and there was speculation that the deputy director would take over - indicating this was not a Bush or Clintonpriority. http://www.nytimes.com/2005/04/06/business/06fannie.html?scp=3&sq=2005%20House%20banking%20regulatory%20oversight%20Senate%20Democrats&st=cse
http://www.nytimes.com/2004/10/07/business/07regulator.html?scp=13&sq=2005%20House%20banking%20regulatory%20oversight%20Senate%20Democrats&st=cse
Recent NYT fact check on McCain's role - http://www.nytimes.com/2008/09/26/us/politics/26check.html?scp=5&sq=2005%20House%20banking%20regulatory%20oversight%20Senate%20Democrats&st=cse
(It also says that Obama didn't - a result of narrowing the issue to specifically Freddie and Fannie)

[beachmom]

17. Your Allbusiness link is pretty damning that our side did not get

what was coming and stayed fixated on small details:

http://www.allbusiness.com/government/532756-1.html

The Republican-backed measure would require Fannie Mae and Freddie Mac to sell portfolio assets unrelated to their mortgage securities businesses. A Democratic alternative would have permitted the regulator to reduce the GSEs' portfolio without requiring such cuts.

During deliberations, Senate Banking Committee Chairman Sen. Richard Shelby (R-Alabama) dismissed the alternative submitted by ranking member Sen. Paul Sarbanes (D-Maryland), noting it did not give enough portfolio guidance to the regulator and had safety and soundness limits that were "not sufficient."

In opposing portfolio caps, Democrats expressed concern that such restrictions would harm Fannie and Freddie's ability to ensure the mortgage market liquidity needed to foster affordable housing.

"There seems to be an expectation on the part of some that if Fannie and Freddie stop holding the assets in their portfolios, that the rest of the market will somehow instantaneously fill the void and that prices will not be affected," said Sen. Jon Corzine (D-New Jersey). "I do not believe that is a reasonable expectation."

S. 190 co-sponsor Sen. Chuck Hagel (R-Nebraska) countered that the GSEs' portfolios are profitable for Fannie Mae and Freddie Mac shareholders, but do little to advance their housing mission.

...

Despite having some "problems" with the portfolio language in the bill, Sen. Jim Bunning (R-Kentucky) urged the committee members to move the bill to the floor, where it would hopefully be passed and the measure would move to conference where, in the process of reconciling S. 190 with its House counterpart, H.R. 1461, "we can craft a bill that does what needs to be done."

However, even before the vote, Bunning and other committee members both Republican and Democrat noted that S. 190's lack of bipartisan support will make the bill's movement an uphill battle.

"We came to this point last year, and we could not get a bipartisan consensus and no bill was put forward," said Bunning. "Unfortunately, I believe we will have the same result. I believe we will move a bill out of committee, but without bipartisan consensus the bill will again go nowhere, and we will not have the world-class regulator we need."--C.W.

It seems to me that it is the truth that Democrats did KILL this bill. They wanted the weaker House bill, although since it softened cutting of assets that were not part of their mortgage securities business, I am unsure of how relevant the differences were between House and Senate as it relates to today. It seems to me two things happened, where I fault both parties:

1. Democrats dug in their heels, deciding they only wanted a perfect bill, and would block anything less.

2. Republicans, who controlled both Houses as well as the executive branch, chose not to lead on this issue, but to instead create a CYA bill while doing little to nothing to get bipartisan support. The Bush WH failed to provide leadership to get it done.

To me, looking at all of this, I am unimpressed with BOTH parties.

[karynnj]

19. I agree with you that that article is damning for the Democrats

I also agree that the Democrats did not see this coming. Nor did the Republicans - or they would have created a bill that dealt JUST with regulation. In addition, the problem is not limited to Freddie and Fannie, but to the entire market.

I tried hard NOT to take only Democratic sources and this was clearly a "Republican" one.

I disagree that the Democrats killed it for three reasons.

1) If the regulation was a high priority to the Republicans, they would have not let Santorum put an amendment in that was not really related that they knew would hit a Democratic nerve. They were the ones who wanted it all their way - refusing all but a perfect bill. The Democrats were signing on to a bi-partisan bill created in a majority Republican House originally sponsored by a Republican

2) Imagine the Republicans put S190 up to a vote. There were then 55 Republicans. It is very hard to imagine that there were not 5 Democrats who would refuse to filibuster a bill with a goal like this. I watched the banruptcy bill and its amendments being voted in 2005. The Democrats lost each and every battle.

3) If it were important to the President and the Republicans, as the AEI says, they would have brought it to the floor and forced the Democrats to filibuster it - and then blame them as irresponsible, whether or not it lost. (The idea that they didn't do it because they thought it couldn't pass seems very unlikely.)

The other question is whether the House bill would have restrained the bad practices enough to make a difference.

[beachmom]

20. All good points. My feeling is that this bill absolutely needed to be

bipartisan or it would not succeed. Simply put, back in 2005, this wasn't exactly a "sexy" topic, and the GOP & Bush were not going to exert political capital on a non-sexy, non-newsmaking bill. So although you are correct that the R's COULD have rammed this bill through Congress (well, the Dems could have filibustered it, which they might have if they felt it was unfair to potential minority homeowners), they were not going to do so because it should have been a bipartisan bill.

Where I totally agree is that the R's didn't seem to be all that interested in making deals to MAKE the bill bipartisan; again, we have the House bill which WAS bipartisan so they definitely could have made it happen.

In the end, we're goint to have to blame the Republicans moreso than Dems simply because they held nearly all the power in 2005. But the Dems are hardly blameless here.

[karynnj]

21. I agree - I also found that some of the hearings are online

http://banking.senate.gov/public/index.cfm?Fuseaction=Hearings.Home

I started to listen to the 4/21/05 hearing, but realized that it was really late. One thing hit me listening to the beginning of it. This was NOT an effort to regulate ALL compnies making these loans, nor was it addressing the problem of bundling them and selling them as securities. The goal was to regulate GSEs period. Listening to one of the experts, it was clear that limiting the size of the GSEs broadened the market for "free enterprise".

Now, Freddie and Fannie did have problems - and the government stood behind them, so there was a public liability. Regulation was needed, but they were only part of the problem.

[karynnj]

23. The Republicans want the blame focused on regulation of Freddie and Fannie

Here is an article that blames an SEC decision - that Paulson as head of Goldman Sacks wanted along with heads of 4 other big companies. http://www.nytimes.com/2008/10/03/business/03sec.html?scp=9&sq=2005%20House%20banking%20regulatory%20oversight%20Senate%20Democrats&st=cse

[karynnj]

2. I'll try to find what I can

For other 2003, 2004, 2005 stuff, here is a blog that has lots of interesting links. The woman who wrote the main blog seems really good - and there are some good responses (both Dem and Rep) with good MSM links.

http://uspolitics.about.com/b/2008/09/18/republican-congress-talked-about-financial-reform-but-did-nothing.htm

[TayTay]

3. This is just unbelievable

The Repubs spin out untruths about the Dems and subprime mortgages and how low-income people and minorities are responsible for the crisis and then you go back and look at McCain's record and see that he didn't give a damn about any of this.

When given the chance to stop "predatory lending" he bailed. When given a chance to even the tax code so "Joe Six-Pack" had the same rights as a millionaire, he bailed. What a fraud!

[YvonneCa]

4. And President Bush, IMHO, was the cheerleader-in-chief...

...for all of it. HE pushed deregulation. HE said, over and over, "It's your money" as he depleted Clinton's surplus. HE constantly touted (on TV) the rising numbers of home owners every time he was questioned on economic concerns. HE put people in office who turned a blind eye to abuses, as long as it served his purposes.

And John McCain was with him all the way. Okay, I'll stop now. :7

[karynnj]

5. Here's what I could find on the first ( Asset Protection Trusts)

I found this Senator Feinstein statement that shows that the Democrats tried to block that provision. (From Schumer's Senate speech, he wrote the amendment after reading teh NYT article.

Senator Schumer's asset protection trust, of which I was a cosponsor, was another indication of where wealthy people could shelter assets and not have to pay back in chapter 13. These are some of the inequities.

In recent years a number of financial and bankruptcy planners have taken advantage of the law of a few States to create what is called an ``asset protection trust.'' These trusts are basically mechanisms for rich people to keep money despite declaring bankruptcy .

They are unfair, and violate the basic principle of this underlying legislation--that bankruptcy should be used judiciously to deal with the economic reality that sometimes people cannot pay their debts, but to prevent abuse of the system.

This loophole is an example of where the law, if not changed, permits, or even encourages, such abuse.

The amendment was simple. It set an upper limit on the amount of money that could be shielded in these asset protection trusts, capping the amount at $125,000.

The bottom line: Without this amendment, wealthy people will be able to preserve significant sums of money in an asset protection trust, effectively retaining their assets while wiping away their debts.

The proposed cap amount, $125,000, is not a small sum. It is more than enough to ensure that the debtor is not left destitute. I believe it is a reasonable amount--it is deliberately based on the now-accepted $125,000 limit for the homestead exemption, which will also remain available to a debtor.
http://feinstein.senate.gov/05speeches/cr-s256-bankruptcy.htm

There are two amendments that Schumer had of this type:

S.AMDT.42
Amends: S.256
Sponsor: Sen Schumer, Charles E. (submitted 3/3/2005) (proposed 3/3/2005)

AMENDMENT PURPOSE:
To limit the exemption for asset protection trusts.

TEXT OF AMENDMENT AS SUBMITTED: CR S2046

STATUS:

3/3/2005:
Amendment SA 42 proposed by Senator Schumer. (consideration: CR S1980-1981, S1991-1994; text: CR S1980)
3/3/2005:
Amendment SA 42 not agreed to in Senate by Yea-Nay Vote. 39 - 56. Record Vote Number: 23.

COSPONSORS(4):

Sen Bingaman, Jeff - 3/3/2005
Sen Durbin, Richard - 3/3/2005
Sen Feinstein, Dianne - 3/3/2005
Sen Clinton, Hillary Rodham - 3/3/2005

Schumer's statement:
SEC. 332. ASSET PROTECTION TRUSTS.

Section 548 of title 11, United States Code, as amended by this Act, is further amended by adding at the end the following:

``(e) The trustee may avoid a transfer of an interest of the debtor in property made by an individual debtor within 10 years before the date of the filing of the petition to an asset protection trust if the amount of the transfer or the aggregate amount of all transfers to the trust or to similar trusts within such 10-year period exceeds $125,000, to the extent that debtor has a beneficial interest in the trust and the debtor's beneficial interest in the trust does not become property of the estate by reason of section 541(c)(2). For purposes of this subsection, a fund or account of the kind specified in section 522(d)(12) is not an asset protection trust.''.

Mr. SCHUMER. Mr. President, I will be very brief. This amendment closes the so-called millionaires loophole. If any of you happened to read yesterday's New York Times, there is in existing law a hidden loophole which basically says if you are a millionaire and want to file a certain trust in one of five States, you can hide all your money even though you declare bankruptcy. So the irony is, in this bill, while we are talking about people who make $35,000 or $40,000 or $45,000 and we want to make sure they do not abuse bankruptcy, the law allows this abuse of bankruptcy.

The Bankruptcy Abuse Prevention and Consumer Protection Act, which I am introducing along with my colleagues Senators DURBIN, FEINSTEIN, and BINGAMAN, and I believe Senator Clinton as well, will close this loophole.

You do not have to be a resident of these five States, but you can be a millionaire or billionaire and stash away assets: mansions, racing cars, yachts, investments, in a special trust, and you can hold onto that windfall after bankruptcy. That is not fair. We will debate the amendment later this afternoon. I want to notify my colleagues and place it in order on the floor.

Rollcall:
.S. Senate Roll Call Votes 109th Congress - 1st Session

as compiled through Senate LIS by the Senate Bill Clerk under the direction of the Secretary of the Senate

Vote Summary

Question: On the Amendment (Schumer Amdt. No. 42 )
Vote Number: 23 Vote Date: March 3, 2005, 05:33 PM
Required For Majority: 1/2 Vote Result: Amendment Rejected
Amendment Number: S.Amdt. 42 to S. 256
Statement of Purpose: To limit the exemption for asset protection trusts.
Vote Counts: YEAs 39
NAYs 56
Not Voting 5
Vote Summary By Senator Name By Vote Position By Home State

Alphabetical by Senator Name
Akaka (D-HI), Yea
Alexander (R-TN), Nay
Allard (R-CO), Nay
Allen (R-VA), Nay
Baucus (D-MT), Yea
Bayh (D-IN), Yea
Bennett (R-UT), Nay
Biden (D-DE), Yea
Bingaman (D-NM), Yea
Bond (R-MO), Nay
Boxer (D-CA), Not Voting
Brownback (R-KS), Nay
Bunning (R-KY), Nay
Burns (R-MT), Nay
Burr (R-NC), Nay
Byrd (D-WV), Yea
Cantwell (D-WA), Yea
Carper (D-DE), Nay
Chafee (R-RI), Yea
Chambliss (R-GA), Nay
Clinton (D-NY), Yea
Coburn (R-OK), Nay
Cochran (R-MS), Nay
Coleman (R-MN), Nay
Collins (R-ME), Nay
Conrad (D-ND), Yea
Cornyn (R-TX), Nay
Corzine (D-NJ), Not Voting
Craig (R-ID), Nay
Crapo (R-ID), Nay
Dayton (D-MN), Yea
DeMint (R-SC), Nay
DeWine (R-OH), Nay
Dodd (D-CT), Yea
Dole (R-NC), Nay
Domenici (R-NM), Nay
Dorgan (D-ND), Yea
Durbin (D-IL), Yea
Ensign (R-NV), Nay
Enzi (R-WY), Nay
Feingold (D-WI), Not Voting
Feinstein (D-CA), Yea
Frist (R-TN), Nay
Graham (R-SC), Nay
Grassley (R-IA), Nay
Gregg (R-NH), Nay
Hagel (R-NE), Nay
Harkin (D-IA), Yea
Hatch (R-UT), Nay
Hutchison (R-TX), Nay
Inhofe (R-OK), Not Voting
Inouye (D-HI), Not Voting
Isakson (R-GA), Nay
Jeffords (I-VT), Yea
Johnson (D-SD), Nay
Kennedy (D-MA), Yea
Kerry (D-MA), Yea
Kohl (D-WI), Yea
Kyl (R-AZ), Nay
Landrieu (D-LA), Yea
Lautenberg (D-NJ), Yea
Leahy (D-VT), Yea
Levin (D-MI), Yea
Lieberman (D-CT), Yea
Lincoln (D-AR), Yea
Lott (R-MS), Nay
Lugar (R-IN), Nay
Martinez (R-FL), Nay
McCain (R-AZ), Nay
McConnell (R-KY), Nay
Mikulski (D-MD), Yea
Murkowski (R-AK), Nay
Murray (D-WA), Yea
Nelson (D-FL), Yea
Nelson (D-NE), Nay
Obama (D-IL), Yea
Pryor (D-AR), Yea
Reed (D-RI), Yea
Reid (D-NV), Yea
Roberts (R-KS), Nay
Rockefeller (D-WV), Yea
Salazar (D-CO), Yea
Santorum (R-PA), Nay
Sarbanes (D-MD), Yea
Schumer (D-NY), Yea
Sessions (R-AL), Nay
Shelby (R-AL), Nay
Smith (R-OR), Nay
Snowe (R-ME), Nay
Specter (R-PA), Nay
Stabenow (D-MI), Yea
Stevens (R-AK), Nay
Sununu (R-NH), Nay
Talent (R-MO), Nay
Thomas (R-WY), Nay
Thune (R-SD), Nay
Vitter (R-LA), Nay
Voinovich (R-OH), Nay
Warner (R-VA), Nay
Wyden (D-OR), Yea

--------------------------------------------------------------------------------------------------------------------------------
(this amendment is a second degree amendment to a Talent amendment that made it impossible to use the Assest Protection Trusts for purposes of fraud Schumer points out that any lawyer knows intent is difficult to prove.)
S.AMDT.129
Amends: S.256 , S.AMDT.121
Sponsor: Sen Schumer, Charles E. (submitted 3/7/2005) (proposed 3/7/2005)

AMENDMENT PURPOSE:
To limit the exemption for asset protection trusts.

TEXT OF AMENDMENT AS SUBMITTED: CR S2197

STATUS:

3/7/2005:
Amendment SA 129 proposed by Senator Schumer to Amendment SA 121. (consideration: CR S2138-2139; text: CR S2138)
3/8/2005:
Considered by Senate. (consideration: CR S2200)
3/9/2005:
Considered by Senate. (consideration: CR S2307, S2342)
3/10/2005:
Considered by Senate. (consideration: CR S2416, S2427-2428)
3/10/2005:
Amendment SA 129 not agreed to in Senate by Yea-Nay. 43 - 56. Record Vote Number: 41.

Mr. SCHUMER. Mr. President, I will be very brief. Late last week, this body, in its wisdom, defeated our amendment to close the millionaire's loophole, an amendment that would allow certain trusts to be set up by anybody, but, of course, they are expensive and only those very wealthy who have a purpose would do it and shield their assets in the trust and then declare bankruptcy and shed their debt.

It meant that if you were very wealthy, and you could afford some fancy lawyers, you were a lot better off than somebody who went bankrupt who made $40,000, $45,000, $50,000, or $55,000. I was hoping the amendment could have been adopted, but it was not.

After that point, a number of my colleagues from the other side said, let's try to work something out. We tried this morning but did not reach agreement. So Senator Talent, my friend from Missouri, just offered his amendment, which I regret to say does not close the millionaire's loophole at all. It is something of a subterfuge. There are two basic problems with it.

First, you would have to prove that the intent of the filer of the trust was to avoid bankruptcy. I do not have to tell anyone here who is a lawyer that to prove that intent, especially when the filer would want to make sure that intent could not be proven and would leave no paper trail, no documents or anything else, would be next to impossible. So in a sense, it would not close the loophole at all.

But there is a broader point. Whether the intent was to do it or not, why should someone be able to shield millions of dollars of assets and declare bankruptcy? We are trying to close abuses here. Why are the abuses of the wealthy any less worthy of being closed than, say, of the middle class, someone who might gamble their meager assets away?

This amendment removes the requirement that you must prove the intent of setting up the trust was simply to avoid your assets being taken in bankruptcy, as well as doing one other thing. The amendment has another problem with it which deals with pensions, and our amendment corrects that as well.

Their amendment on pensions would subject pensions to these rules, and we do not want to do that. That is quite different than somebody hiding their assets in these trusts. But some of these trusts are used by pension plans. We do not bring pension plans into it. In fact, we take them out.

The Talent amendment has kept the pension proposal. I am sure we will be debating the Talent amendment and my second-degree amendment to the Talent amendment at some point as we move forward on the bankruptcy bill, but I wanted to let my colleagues know what has happened.

Rollcall:
U.S. Senate Roll Call Votes 109th Congress - 1st Session

as compiled through Senate LIS by the Senate Bill Clerk under the direction of the Secretary of the Senate

Vote Summary

Question: On the Amendment (Schumer Amdt. No. 129 )
Vote Number: 41 Vote Date: March 10, 2005, 02:57 PM
Required For Majority: 1/2 Vote Result: Amendment Rejected
Amendment Number: S.Amdt. 129 to S.Amdt. 121 to S. 256
Statement of Purpose: To limit the exemption for asset protection trusts.
Vote Counts: YEAs 43
NAYs 56
Not Voting 1
Vote Summary By Senator Name By Vote Position By Home State

Alphabetical by Senator Name
Akaka (D-HI), Yea
Alexander (R-TN), Nay
Allard (R-CO), Nay
Allen (R-VA), Nay
Baucus (D-MT), Yea
Bayh (D-IN), Yea
Bennett (R-UT), Nay
Biden (D-DE), Yea
Bingaman (D-NM), Yea
Bond (R-MO), Nay
Boxer (D-CA), Yea
Brownback (R-KS), Nay
Bunning (R-KY), Nay
Burns (R-MT), Nay
Burr (R-NC), Nay
Byrd (D-WV), Yea
Cantwell (D-WA), Yea
Carper (D-DE), Nay
Chafee (R-RI), Yea
Chambliss (R-GA), Nay
Clinton (D-NY), Not Voting
Coburn (R-OK), Nay
Cochran (R-MS), Nay
Coleman (R-MN), Nay
Collins (R-ME), Nay
Conrad (D-ND), Yea
Cornyn (R-TX), Nay
Corzine (D-NJ), Yea
Craig (R-ID), Nay
Crapo (R-ID), Nay
Dayton (D-MN), Yea
DeMint (R-SC), Nay
DeWine (R-OH), Nay
Dodd (D-CT), Yea
Dole (R-NC), Nay
Domenici (R-NM), Nay
Dorgan (D-ND), Yea
Durbin (D-IL), Yea
Ensign (R-NV), Nay
Enzi (R-WY), Nay
Feingold (D-WI), Yea
Feinstein (D-CA), Yea
Frist (R-TN), Nay
Graham (R-SC), Nay
Grassley (R-IA), Nay
Gregg (R-NH), Nay
Hagel (R-NE), Nay
Harkin (D-IA), Yea
Hatch (R-UT), Nay
Hutchison (R-TX), Nay
Inhofe (R-OK), Nay
Inouye (D-HI), Yea
Isakson (R-GA), Nay
Jeffords (I-VT), Yea
Johnson (D-SD), Yea
Kennedy (D-MA), Yea
Kerry (D-MA), Yea
Kohl (D-WI), Yea
Kyl (R-AZ), Nay
Landrieu (D-LA), Yea
Lautenberg (D-NJ), Yea
Leahy (D-VT), Yea
Levin (D-MI), Yea
Lieberman (D-CT), Yea
Lincoln (D-AR), Yea
Lott (R-MS), Nay
Lugar (R-IN), Nay
Martinez (R-FL), Nay
McCain (R-AZ), Nay
McConnell (R-KY), Nay
Mikulski (D-MD), Yea
Murkowski (R-AK), Nay
Murray (D-WA), Yea
Nelson (D-FL), Yea
Nelson (D-NE), Nay
Obama (D-IL), Yea
Pryor (D-AR), Yea
Reed (D-RI), Yea
Reid (D-NV), Yea
Roberts (R-KS), Nay
Rockefeller (D-WV), Yea
Salazar (D-CO), Yea
Santorum (R-PA), Nay
Sarbanes (D-MD), Yea
Schumer (D-NY), Yea
Sessions (R-AL), Nay
Shelby (R-AL), Nay
Smith (R-OR), Nay
Snowe (R-ME), Nay
Specter (R-PA), Nay
Stabenow (D-MI), Yea
Stevens (R-AK), Nay
Sununu (R-NH), Nay
Talent (R-MO), Nay
Thomas (R-WY), Nay
Thune (R-SD), Nay
Vitter (R-LA), Nay
Voinovich (R-OH), Nay
Warner (R-VA), Nay
Wyden (D-OR), Yea

--------------------------------------------------------------------------------------------------------------------------------

Here is the Talent amendment (important as it is deceptive and can be used to say that McCain voted to deter this - when in fact as Schumer said you need to prove intent,

U.S. Senate Roll Call Votes 109th Congress - 1st Session

as compiled through Senate LIS by the Senate Bill Clerk under the direction of the Secretary of the Senate

Vote Summary

Question: On the Amendment (Talent Amdt. No. 121 )
Vote Number: 42 Vote Date: March 10, 2005, 03:18 PM
Required For Majority: 1/2 Vote Result: Amendment Agreed to
Amendment Number: S.Amdt. 121 to S. 256
Statement of Purpose: To deter corporate fraud and prevent the abuse of State self-settled trust law.
Vote Counts: YEAs 73
NAYs 26
Not Voting 1
Vote Summary By Senator Name By Vote Position By Home State

Alphabetical by Senator Name
Akaka (D-HI), Nay
Alexander (R-TN), Yea
Allard (R-CO), Yea
Allen (R-VA), Yea
Baucus (D-MT), Yea
Bayh (D-IN), Nay
Bennett (R-UT), Yea
Biden (D-DE), Yea
Bingaman (D-NM), Yea
Bond (R-MO), Yea
Boxer (D-CA), Nay
Brownback (R-KS), Yea
Bunning (R-KY), Yea
Burns (R-MT), Yea
Burr (R-NC), Yea
Byrd (D-WV), Yea
Cantwell (D-WA), Yea
Carper (D-DE), Nay
Chafee (R-RI), Yea
Chambliss (R-GA), Yea
Clinton (D-NY), Not Voting
Coburn (R-OK), Yea
Cochran (R-MS), Yea
Coleman (R-MN), Yea
Collins (R-ME), Yea
Conrad (D-ND), Yea
Cornyn (R-TX), Yea
Corzine (D-NJ), Yea
Craig (R-ID), Yea
Crapo (R-ID), Yea
Dayton (D-MN), Yea
DeMint (R-SC), Yea
DeWine (R-OH), Yea
Dodd (D-CT), Yea
Dole (R-NC), Yea
Domenici (R-NM), Yea
Dorgan (D-ND), Yea
Durbin (D-IL), Nay
Ensign (R-NV), Yea
Enzi (R-WY), Yea
Feingold (D-WI), Nay
Feinstein (D-CA), Nay
Frist (R-TN), Yea
Graham (R-SC), Yea
Grassley (R-IA), Yea
Gregg (R-NH), Yea
Hagel (R-NE), Yea
Harkin (D-IA), Yea
Hatch (R-UT), Yea
Hutchison (R-TX), Yea
Inhofe (R-OK), Yea
Inouye (D-HI), Nay
Isakson (R-GA), Yea
Jeffords (I-VT), Nay
Johnson (D-SD), Yea
Kennedy (D-MA), Nay
Kerry (D-MA), Nay
Kohl (D-WI), Yea
Kyl (R-AZ), Yea
Landrieu (D-LA), Nay
Lautenberg (D-NJ), Nay
Leahy (D-VT), Nay
Levin (D-MI), Nay
Lieberman (D-CT), Nay
Lincoln (D-AR), Yea
Lott (R-MS), Yea
Lugar (R-IN), Yea
Martinez (R-FL), Yea
McCain (R-AZ), Yea
McConnell (R-KY), Yea
Mikulski (D-MD), Nay
Murkowski (R-AK), Yea
Murray (D-WA), Nay
Nelson (D-FL), Yea
Nelson (D-NE), Yea
Obama (D-IL), Nay
Pryor (D-AR), Yea
Reed (D-RI), Nay
Reid (D-NV), Nay
Roberts (R-KS), Yea
Rockefeller (D-WV), Nay
Salazar (D-CO), Yea
Santorum (R-PA), Yea
Sarbanes (D-MD), Nay
Schumer (D-NY), Nay
Sessions (R-AL), Yea
Shelby (R-AL), Yea
Smith (R-OR), Yea
Snowe (R-ME), Yea
Specter (R-PA), Yea
Stabenow (D-MI), Nay
Stevens (R-AK), Yea
Sununu (R-NH), Yea
Talent (R-MO), Yea
Thomas (R-WY), Yea
Thune (R-SD), Yea
Vitter (R-LA), Yea
Voinovich (R-OH), Yea
Warner (R-VA), Yea
Wyden (D-OR), Nay

[karynnj]

6. Less pertinent, but somewhat interesting

1) The ABA's identifies "myths" and they use the Talent amendment to say that these can not be used if there is fraud - ignoring that they can of course shelter everything and as Schumer said it would be hard to prove fraud.

http://www.aba.com/Press+Room/PR_Bankruptcy_041205myths.htm

2) Two documents explaining the impact of the law on the Asset Protection Trusts by financial planners
Note that the first one shows that it favors one of their products and the second makes this point: {b} The key impact is that Congress has now validated the use of asset protection trusts. (which is an interesting comment suggesting that prior to this the legality was less clear.


http://resourcecenter.virchowkrause.com/resources/intlestatetrustplanningcch306.pdf
http://www.abanet.org/rppt/publications/estate/2005/2/AssetProtectionGetty.pdf

[karynnj]

8. Not news - but Durbin gave an amazing speech on this

He refers to having offered the bill before - I think it is the 2001 that he spoke of angrily as he voted on the bailout this week - McCain voted "NO" in 2001 as well. (S.Amdt. 17 to S. 420, March 8, 2001)

Here is the 2005 speech:
SEC. 206. DISCOURAGING PREDATORY LENDING PRACTICES.

Section 502(b) of title 11, United States Code, is amended--

(1) in paragraph (8), by striking ``or'' at the end;

(2) in paragraph (9), by striking the period at the end and inserting ``; or''; and

(3) by adding at the end the following:

``(10) if the creditor has materially failed to comply with any applicable requirement under section 129(a) of the Truth in Lending Act (15 U.S.C. 1639(a)) or section 226.32 or 226.34 of Regulation Z (12 C.F.R. 226.32, 226.34), such claim is based on a secured debt.''.

Mr. DURBIN. Mr. President, there is hardly one of us who has not heard a story that goes as follows: An elderly widow is living in her family home. Her children have moved out. She is getting up in years, but she is happy in her home, exactly where she wants to be. As time goes on, life gets more complicated for her, and someone takes advantage of her. There is a knock on the door and someone says to her: I just took a look at your roof. You must realize it is in terrible condition, and luckily I do roofing. I will be happy to repair your roof. Or, if you put vinyl siding on this old house, you could save so much on your heating bill. Or, did you notice that your basement foundation is starting to crack? That could be dangerous, and luckily I do the work.

You hear the story over and over, that this person--I do not mean to pick on elderly widows; it could be a widower, too--says: Sure, that sounds good. You seem like a nice, bright young man. Why doesn't your company come in and fix my house.

They say: Great. Here is a little contract we would like you to sign to have the home improvements.

They look at it and they say: It is tough for me to read it. I am not a lawyer.

Trust me, it is a standard contract.

They sign on the dotted line.

You have heard this story. Maybe someone in your family has been through this. Then what happens. The work turns out to be shoddy. They do not do what they are supposed to do. The charges are outrageously high. Then you take a look at the contract, and it turns out the contract creates a lien on the property, perhaps another mortgage on the property, perhaps a balloon payment, maybe interest rates that go right through the roof for the unsuspecting person. There are finance companies behind these door-to-door con artists who write out these contracts and end up, when all is said and done, owning the home.

That is not an outrageous story I have told you. It is repeated over and over, day in and day out, in my home State of Illinois and around the country. That is why I am proposing this amendment. This is called predatory lending. You know what a predator is: the animal that goes out trying to devour its prey. Predatory lenders do just that, too. This amendment is designed to penalize the growing number of high-cost predatory mortgage lenders who lead vulnerable borrowers down the path to foreclosure and bankruptcy. It is about balance, something this bankruptcy bill desperately needs.

If we are going to change the bankruptcy laws because too many people go to bankruptcy court, then we must also address predatory lending, which I have described, which is driving too many vulnerable Americans into bankruptcy court. If we are going to make the door to the bankruptcy court harder for consumers to open, then we must also make sure we are not protecting predatory creditors that force consumers to knock on that door.

There is no uniformly accepted definition of predatory lending. It is a lot like the old Supreme Court saying: I will know it when I see it. But high-pressure consumer finance companies have cheated unsophisticated and vulnerable consumers out of millions of dollars using a variety of abusive credit practices. Let me give examples of what they are: hidden and excessive fees and interest rates; lending without regard to the borrower's ability to pay; repeatedly refinancing a loan over a short period of time without any economic gain, known as loan flipping; committing outright fraud and deception, such as intentionally misleading borrowers about the terms of the loan.

Some automobile lenders in the used car industry have gouged consumers with interest rates as high as 50 percent with assessments for credit insurance, repair warranties, and hidden fees, adding thousands of dollars to the cost of an otherwise inexpensive used car. Pawn shops in some States have charged annual rates of interest of 240 percent or more. I could give you a lot more description of these predatory lending practices. Let me just tell you a few stories.

My colleagues who were listening to this debate know I have offered this before. They are likely to say: Here

GPO's PDF

comes DURBIN again with the same old amendment. I am here again as I was in a previous Congress because this problem is still with us today. The last time I called up this amendment on debate on a bankruptcy bill we lost by one vote. This problem has only become worse since Congress defeated that amendment.

As predatory mortgage lending increases, it continues to target lower income women, minorities, and older Americans. In 1998, Senator Grassley of Iowa, my friend and colleague and the author of the bankruptcy bill, held a hearing in the Senate Special Committee on Aging looking into predatory lending. At the hearing, this is what a former career employee of that industry had to say.

Listen to how he described his customers:

My perfect customer would be an uneducated woman who is living on a fixed income, hopefully from her deceased husband's pension and Social Security, who has her house paid off, is living off credit cards but having a difficult time keeping up her payments, and who must make a car payment in addition to her credit card payments.

This witness acknowledged that unscrupulous lenders specifically market their loans to elderly widowed women, blue-collar workers, people who have not graduated with higher education, people on fixed incomes, non-English speaking, and people who have significant equity in their homes.

That statement was made in 1998, 7 years ago. Six years later, February 2004, the Special Committee on Aging held another hearing on the same subject. At this hearing, held just 1 year ago, this is what a witness from the Government Accountability Office said:

Consistent observational and anecdotal evidence, along with limited data, indicates that for a variety of reasons, elderly homeowners are disproportionately the targets of predatory lending. Because older homeowners on average have more equity in their homes than younger homeowners, abusive lenders could be expected to target these borrowers and ``strip'' the equity from their homes. The financial losses older people can suffer as a result of abusive loan practices can result in the loss of independence and security, significant decline in the quality of life.

So has the problem of predatory lending gone away, as my opponents might argue? No, it has gotten worse.

What else has been going on since we first considered this in the Senate?

The AARP Litigation Foundation, which files lawsuits to help seniors, has been party to seven lawsuits since 1998 involving allegations of predatory lending against more than 50,000 elderly Americans. As of February 2004, six of their lawsuits have been settled, and one is still pending.

Minorities are still being targeted by these unscrupulous lenders as well.

According to the Center for Responsible Lending, Hispanic Americans are two and a half times more likely than whites to receive a refinancing loan from one of these lenders. African Americans are more than four times more likely to be targeted.

Let me share a credible article from the Los Angeles Times of February 2004 by Ameriquest, one of the largest subprime lenders. The article includes a story about how they tricked a minority, Sara Landa, from East Palo Alto, CA. She speaks Spanish and limited English.

She entered into a settlement with one of these companies, Ameriquest. After that, it was alleged that Ameriquest employees tricked her into signing a mortgage that required her to pay almost $2,500 a month, far more than her income from cleaning houses. All the negotiations were in Spanish. All the loan documents were in English. The only thing she ever received from Ameriquest in Spanish was a foreclosure notice. It is amazing.

In this same article, you will find statements from many ex-employees of this company, Ameriquest, asserting that while they worked for this company they were engaged in improper and predatory practices.

Mark Bomchill, a former Ameriquest employee, said he left his job because he didn't like the way Ameriquest treated people. He said that the drive to close deals and grab six-figure salaries led many of his fellow employees astray. Listen to what he said. He said:

They forged documents, hyped customer's credit worthiness and ``juiced'' mortgages with hidden rates and fees.

Two other former employees said borrowers were often solicited to refinance loans that were not even 2 years old. This happened even though Ameriquest pledged in 2000 not to resolicit customers for at least 2 years. They completely ignored that pledge.

Nearly one in nine mortgages made by Ameriquest last year was a refinance on an existing loan less than 2 years old. The abuses don't end there.

Former Kansas City Ameriquest employees described another predatory practice by the same company where they would fabricate borrowers' incomes and falsify appraisals.

Lisa Taylor, a former loan agent from Sacramento, said she witnessed documents being altered as she walked around the vending machine that people were using as a tracing board, copying borrowers' signatures on an unsigned piece of paper.

If you think these are isolated examples, exaggerated stories, let me refer you to a 2004 GAO study that found that this is a prevalent problem in the subprime mortgage industry--this predatory lending. They found plenty of indications that predatory mortgage lending was a major and growing problem in the year 2004.

According to the 2004 study, in the past 5 years, there have been a number of major settlements resulting from government enforcement acts. I will mention a few.

Household International agreed to pay up to $484 million to homeowners across America to settle allegations by States that it used unfair and deceptive lending practices.

In September 2002, Citigroup agreed to pay $240 million to resolve FTC and private party charges that Associates First Capital Corporation engaged in systematic and widespread abusive lending practices.

In March 2000, First Alliance Mortgage Company settled with the Federal Trade Commission, six States, and the AARP to compensate borrowers more than $60 million because of their deceptive practices to lure senior citizens. An estimated 28 percent of the 8,700 borrowers in that suit were elderly.

These are documented. While some victims of predatory lending are lucky enough to receive compensation because of these lawsuits, many more have fallen to predatory lenders, and they never can turn to our legal system for help.

Here is an astonishing statistic. Mr. President, 1 in 100 conventional loans ends in foreclosure, but 1 in 12 subprime predatory loans ends in foreclosure. While it might be expected, these loans, because they are made with less creditworthy borrowers, would result in an increased rate of foreclosure, but the magnitude of the differences tells us that there is more at stake here than just the creditworthiness of the borrower.

The Senate Banking Committee held a hearing in July 2001. At that hearing, a report from the Center for

Responsible Lending was released which showed the predatory lending practices cost American borrowers an estimated $9.1 billion annually.

Let me tell you why I am offering this amendment. Imagine, if you will, that it is your mother, father, grandmother, or grandfather alone in their home, and they signed this home improvement loan or signed this refinancing, which you learn about months later. You say: Grandma, you didn't tell me that you had somebody come in and do some work, and you didn't tell me you signed these papers. Did anybody read them?

No. He seemed like such a nice man, and he told me it was a standard form.

And you take it over to your family attorney. He says: My goodness. What your grandmother signed here is a remortgage of the property. She owned the home, and now, by buying vinyl siding, she has remortgaged her property and promised to pay back just a few hundred dollars a month to start with, but in a matter of a year or two, it explodes. The balloon pops, and it turns into a $2,000-a-month payment.

How is she going to pay it? Let us assume the worst circumstance--she doesn't pay. The mortgage is foreclosed on. She is about to lose her home, and she files for bankruptcy. She has nothing left on this Earth except a Social Security check, maybe a little pension check, some savings, or meager savings. She goes into bankruptcy court

GPO's PDF

to try to get out from under this burden. Guess who shows up at the bankruptcy court. The same predatory lender shows up saying: We own whatever she owns. She signed this mortgage.

Is it fair? Is it fair for somebody to take in a legal document, a predatory mortgage, that takes advantage of elderly people, and then be protected in the bankruptcy court? I don't think so.

If we are going to hold people coming into bankruptcy court who file for bankruptcy to the high moral standard of paying back their debts, should we not hold the creditors walking into bankruptcy court to a similar high moral standard that they must have followed the law, that they must have engaged in this highly regulated, moral conduct?

The amendment I am offering prohibits a high-cost mortgage lender from collecting on its claim in bankruptcy court if the lender extends credit in violation of existing law--the Home Ownership and Equity Protection Act of 1994, which is part of the Truth in Lending Act.

I am not reinventing the law. I am just saying when you issued this mortgage, you violated the law. You took advantage of a person by violating the law. You cannot then go in court and say protect me with the law. You can't have it both ways. If you broke the law to incur this debt, you can't go in court and ask for the law to protect you to collect the debt.

That seems to me to be just. If you were legal in the way you treated this person, then you can use the law in enforcing your debt. If you were illegal in the way you treated this person, you can't go into court and use the law to collect on that illegally based debt. That is simple.

When an individual falls prey to lenders and files for bankruptcy seeking last resort help, the claim of the predatory lender will not be allowed against a debtor. If the lender failed to comply with the requirements of the Truth in Lending Act for high-cost mortgages, the lender has no claim in bankruptcy court.

The law has long recognized the doctrine of unclean hands where a party to an illegal agreement is not able to recover damages from other parties to such an agreement because the claimant itself was the party to an illegality.

My amendment is not aimed at all subprime lenders. The amendment will have no impact whatever on honest lenders who make loans that followed the law even if the loans carry high interest rates or high fees. Instead, it is directed solely at the bottom feeders, the scumbags, the predator lenders. My amendment reinforces current law and will help ensure that predatory lenders do not have a second chance to victimize their customers by seeking repayment in a bankruptcy proceeding.

Second, this amendment is not aimed at technical violations of the Truth In Lending Act. The violations must be material. I specifically made that change in my language to address some of the concerns raised in the first debate.

Third, the amendment does not amend the Truth In Lending Act. There is no question as to whether the Senate Banking Committee has any jurisdiction. We do not change the Truth In Lending Act. I point out the bankruptcy bill does amend that act in some parts. My amendment absolutely does not.

Some may argue the amendment is unnecessary because current law is sufficient. I disagree. I recognize Congress has passed numerous laws that Federal agents and regulators have used to combat predator lending, but predatory lending is on the rise. Many Americans are being cheated and duped by these unscrupulous business people.

President Bush has attempted to promote home ownership as part of the vision of an ownership society. I applaud him. For my wife and me, the first time we purchased a home was a turning point in our lives. We started to look at the world a lot differently. This was our home, on our block, in our neighborhood, in our town. It is an important part of everybody's life. I support that. But unless we rein in the abusive behavior of some in the lending industry, we will be promoting not an American dream, but an American nightmare for thousands of homeowners.

Let me say one more word. The last time I offered this amendment, the most stunning thing I learned was that the major financial institutions in America, the big boys, the blue chips, the best in the industry, oppose my amendment. You think, wait a minute, why would the best financial institutions in America oppose an amendment to stop people from cheating and violating the law in issuing mortgages? I never quite understood. Maybe their logic is this: If we let this amendment in where some of the worst lenders are held to the standard, then maybe the Government will take a closer look at us, too, so let's be opposed to all amendments. Let's try to protect everybody in the industry even if what they are doing is fundamentally unfair and even illegal. That is the best argument I can come up with.

I urge those in the financial industry who may be following this debate and desperately trying to see this bill pass, please be honest about this. Do you want to protect the subprime lenders, these predatory lenders who are engaged in the worst practices in your business? Why in the world would you want them to stay in business? Why would you want to protect them in court when they give lending a bad name, which is your business?

There are an awful lot of examples I can give. Let me mention a few cases before I close. Alonzo Hardaway owned a home in Pennsylvania for 28 years, raised his family there, went through a divorce there, his parents died there, but he no longer lives there. As of summer, he was living in a homeless shelter. Why? Because in 1999 a home remodeler and subprime lender convinced Mr. Hardaway to take a home equity loan for $35,000 at 13-percent interest to redo his kitchen windows and doors. When this 56-year-old man's trash hauling business faltered, he defaulted on his loan, his home was sold at a sheriff's sale and he was evicted in March of 2004. The loan is with The Associates, a large subprime lender later bought by Citigroup, which 2 years ago paid $215 million in fines for unscrupulous lending. That was documented in the Pittsburgh Post-Gazette.

There are many other examples. I mention one or two of particular interest. Here is one of a victim of appraisal fraud known as ``house flipping.'' Ms. Wragg, a retired school aide, found the home of her dreams in a little neighborhood in Brooklyn. It was a classic brick house with a porch, a backyard. She had not originally set out to be an owner, but her eyes drifted to an advertisement offering the home of her dreams. She began her journey.

Now, 2 years later, she said that journey has turned into a nightmare. Her life savings has been depleted by a house she could never afford. The house was appraised at far more than it was worth and Ms. Wragg was given two mortgages she would never have qualified for, carrying costs more than double her income. She blames the mortgage company, the appraiser, the lawyer who represented her, and United Homes, LLC, of Briarwood, Queens, the company that owned the home, placed the ad, and arranged almost everything about closing. This is what she said: I trusted them, because I had never done this before and I didn't know any better.

These cases go on and on. I will not read them into the RECORD. There is one in your community, in your State. Maybe it happened in your family. You have read about them. You have seen them on television. And I am sure you wondered, Who is going to stop this abuse and exploitation? We only stop it when we tell these companies we will not protect you in bankruptcy court. You cannot take away the home of someone if you have engaged in illegal practices in issuing your mortgage.

When we consider the amendments before the Senate on this bankruptcy bill, I hope we will not only hold those walking in the bankruptcy court seeking relief from their debts to high standards of moral conduct, we will also hold the creditors who are seeking repayment of debts to the same conduct, perhaps just legal conduct, which is the only standard I have included in my amendment.

[ProSense]

9. Good stuff

here

[karynnj]

24. Today's NYT has an artice that explains what happened at Fannie and Freddie

It deal with what motivated the companies to abandon prudent practices. (Short answer pressure from stockholders and hedge funds to make more, Congress, and lenders, who often threatened to go directly to Wall Street.

http://www.nytimes.com/2008/10/05/business/05fannie.html?hp

As the root problem was shaky, bad loans - this article, the 2004 plank, and Kerry's effort to deal directly with the bad loans are probably the best defense of him.

As to Bush, the NYT article shows that Paulson's moves could well have hurt. In addition, it was Chris Cox who oked the practices that led the financial companies to aggressively get into this business - leading to the threats by lenders to the FMs that if they didn't take the riskier loans, they would be cut out. (This speaks of how they got in - http://www.nytimes.com/2008/10/03/business/03sec.html?scp=9&sq=2005%20House%20banking%20regulatory%20oversight%20Senate%20Democrats&st=cse
Cox was brought in to replace someone who was more in favor of regulation. http://news.bbc.co.uk/1/hi/business/4607035.stm

[beachmom]

25. That article has some damning quotes by Reed and Frank.

But interestingly enough, it is partly coincidental since Dems gained control of Congress in 2006 and the trouble started in 2007. It also makes the Bush Administration look really bad, especially the one guy at Treasury who botched dealings with Freddie, and then left that job to become the head of the now defunct Wachovia Bank (what a loser!). It seems to me that Chuck Hagel should be given credit for what he did, especially since he repeatedly re-introduced his legislation. McCain is no hero on regulation of Freddie/Fannie in my view, since he only joined in after the bill was dead and did nothing to further its cause except ONE floor speech. I wonder if his Fannie/Freddie lobbyist staff/friends told him to do this as a "get out of jail free card", since it gave him something to fall back on, while in reality, he didn't do anything.

[karynnj]

27. I agree that Hagel is the only one who comes out good here

The article is amazingly sympathetic to Mudd - explaining well all the forces pushing him to ignore any calls for caution.

I think it may have been another McCain the "reformer" "maverick", done after the NYT wrote of a situation that he had not been concerned with before.

[YvonneCa]

26. Here's an older article...

...written by Eliot Spitzer about 'Bush as cheerleader'.

http://www.washingtonpost.com/wp-dyn/content/article/2008/02/13/AR2008021302783.html

Like everything else he's messed up, IMO this came from Bush and his blindness, based on ideology.

[beachmom]

28. True, but we can't deny that many Dems had a hand in this disaster, too.

They were so intent on their own ideology of fairness, that they failed to see that some shady business was going down. But ... since they did not control the executive branch, I think they had less access to the full truth about it.

I just think Barack Obama is the perfect candidate for us, because he hasn't been in Congress long, did not serve on the banking committee, and therefore has a credibility to his refrain of running against Washington. The Clintons would have had more trouble due to the long, long record Hillary and Bill had, a lot of it favorable toward de-regulation.

[YvonneCa]

29. I agree, but I think the real distinction where ideology is...

...concerned goes to intent. The Democratic 'ideology' to promote fairness and opportunity to all Americans, regardless of race, religion, etc. is an honorable intent, IMHO. The Republican 'ideology' to promote corporate success (which may or may not trickle down to help individual citizens) and to profit from it, IMO again, is not as honorable. And if success and profit become the be all and end all of their efforts...if they lose any focus they may have had of helping regular people...then it is not honorable at all.

I feel great empathy toward the Dems involved, because I think, in most cases, they had no idea how pervasive the problem was (and is). I believe they...and we...are still in the dark on this. We will not know how much bad paper is being held by these institutions (banks) until they open their books...and they don't want to do that.

I agree with you about Obama being the perfect candidate. But, more importantly, I think he will be the right President. We will need a President with great credibility...and one who can be counted on to spell out the truth of what we face, bring us together to work on our problems, and help us see the future in a positive way. This will be our challenge.

[karynnj]

30. 60 minutes covered the mortgage crisis - I haven't watched it yet

I just saw the link on GD.

http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=389&topic_id=4175272&mesg_id=4175272

[YvonneCa]

31. Just watched it. Steve Kroft seemed a little...

...upset by some of the answers he was getting from these Wall Street types.



http://www.cbsnews.com/video/watch/?id=4502673n

[karynnj]

32. I can see why!

The amazing thing is that so many people simply were willing to trust that the complicated instruments that they didn't understand.

The other thing that comes through is that the concentration on the shaky mortgage practices misses the bigger problem. I don't think that this is ideological bias, it is likely the media dealing with the part they understand, rather than the part they don't.

As to blame game, the Democrats and Republicans both failed to eliminate the shaky mortgage practices. The Republicans defeated Durbin's amendment that was against predatory lending - in fairness, this was not directed at the full spectrum of shaky practices. Directly stopping shaky lending practices or having the ability to renegotiate the mortgages were the two things that could have helped the most.

Both S190 and HR1461 were designed to regulate Freddie and Fannie. I think the biggest difference was that S190 restrained the size of the companies. A good regulator could have said no to buying loans below some standard. That would have made Freddie and Fannie less profitable and smaller (they would have lost even some loans they were willing to take.) However, the private companies competing with the FMs would have bought them and the big financial companies would be in the same mess - and they would not have been part of this mess.

On the bigger problem, it is the Bush administration and the SEC that failed to regulate. Cox was put in because he was not big on regulation.

[YvonneCa]

33. I agree...a lot...with these statements:

1. "The other thing that comes through is that the concentration on the shaky mortgage practices misses the bigger problem."

2. "On the bigger problem, it is the Bush administration and the SEC that failed to regulate. Cox was put in because he was not big on regulation. "

3. "A good regulator could have said no to buying loans below some standard."


I am probably REALLY biased on this thing, but after the experience of Enron and what they did in California (taxpayers are literally STILL paying for this and I believe it is the reason California's economy tanked) I am flabbergasted (there's a word :7 ) that now we are caught up in a similar scandal at the national level. And I am ANGRY that these people put our national and global economy at risk. They all belong in jail...which is where Ken Lay would be if still alive.

Enron dealt with energy (as opposed to finances) as their base product, but they created a Ponsi scheme that left the little guy holding the bag...while CEO's make millions. Bush/Cheney took a 'hand's off' approach (through their ideological influence on FERC of de-regulation) and that enabled Enron to swindle people out of their money. Enron employees were hurt. People in California went out of business because they couldn't afford triple/quadrupled energy bills, and 'Grandma Millie's' couldn't afford to keep their homes, or afford food. It was on purpose, and the Enron folks were recorded making fun of people's woes...all the way to the bank.

For me, this is the same. The players are different...except for Bush/Cheney. This time it's the SEC that they influenced. The ideology problem is top down...and I don't believe it affects media. I think they are just trying to make sense out of this. It is easier to explain the stock market (Wall Street) and Main Street (how people got involved in the sub prime stuff) than it is to explain the securities and CDS (swaps) and the market that grew up around them over time because no one regulated that $60 TRILLION dollar market. It is easier to blame the homeowner, the shady mortgage company (or credit card company, or auto loan company because that shoe has yet to fall) than it is to point out the pattern of behavior by this administration for eight years that I believe led to where we are now.

My mom, who voted for Bush twice, said...when she saw what they have done...said to me "Well, they ought to be impeached."

As to mistakes on both sides of the aisle...there may be individuals who chose to benefit from this, rather than stand up to it. But I think the record will show that MANY Democrats stood up...over several years...and were knocked down by Republicans afraid to go counter to the Bush Administration. Time will tell.

:patriot:

[beachmom]

34. Tay, this is a must read diary rescued about the CRA:

http://www.dailykos.com/story/2008/10/7/0151/17629/241/622157

The diarist does not have links, but cites reports she has read, and it is an excellent summary of what the CRA is and was about, and how it is not responsible for this crisis, especially since a lot of the subprime mortgages were not part of the CRA program.

[karynnj]

35. It was the derivatives and Greenspan

(I have to leave for synagogue but I wanted to post this)
http://www.nytimes.com/2008/10/09/business/economy/09greenspan.html?hp

[beachmom]

36. This is a must read post of the complex reasons of what went wrong.

This person holds a politically incorrect notion: Not everyone should own a home.

http://www.popmatters.com/pm/post/64263/from-happy-homeownership-to-the-end-of-our-economy/

Within the post is a quote all the factors involved:

To repeat my prior arguments, the proximate cause of the Housing crisis were (1) Ultra-low rates; and (2) Abdication of traditional lending standards, thanks to (3) originators ability to resell mortgages for securitization purposes, and hence, (4) not have to worry about loan defaults.

The credit crisis was caused by (1) the above securitized mortgage paper, that was (2) rated triple AAA by Moody’s and Standard & Poors, which then (3) Which was then “insured” by credit default swaps (CDS)—the unreserved for, shadow insurance products (4) whose exemption was made possible by the Commodities Futures Modernization Act. That legislation exempted these derivatives from any supervision or regulation. The lack of reserve requirements is why there is now $62 trillion in CDS, many of which will never pay their counter parties the promised insurance.

Within that Blame Game stew both political parties are implicated. And I suppose some digging on how Sen. Kerry voted on key legislation mentioned in this post as well as the NYT article Karynnj posted about derivatives and Greenspan is perhaps in order. We in America had it in our minds that EVERYONE should buy a house, which is a feel good notion that we now learn wasn't so good an idea. Or at the least of it, people should have bought a more modest house. However, when you look at every link listed above, the housing market collapse alone would not have put us in this position. So many more things had to happen in order to create the Perfect Storm of our financial crisis today.

If we want to get exact about blaming who for what I would put it this way:

Housing crisis: fault of Democrats (low income people should buy homes!) and Republicans (Ownership Society!), Greenspan (keep interest rates low!), lack of regulating lenders & not keeping securities firms and banks separate (Republicans/Clinton Democrats), creating a seemingly risk-free system of selling loans to Fannie/Freddie (Democrats, but also Republican lobbyists).

Credit crisis: Republicans' deregulation, Greenspan, Clinton Administration, Bush Administration, and perhaps some choice Democrats in Congress (will have to check on that one) but more on Republicans since they controlled Congress during that time.

When you look at this, you realize how silly the Blame Game is. The truth is WE f***ed up. We are the citizens who hired our government, and looked away when they were making important decisions that affected us. We were too focussed on other things, some important (terrorism) and some things not that important (culture war, Monica Lewinsky), and we failed to see that the financial sector was highly unregulated and vulnerable if things went wrong. This is a more difficult truth to take, so instead the Republicans are now attacking ACORN and the Democrats while the Democrats are blaming the Bush Administration (well, that is less absurd than ACORN, but hardly the whole truth). I think we need to come to terms with what has happened; that we were all involved, some more than others, but this is our country and we let this happen.

I also think we need to focus on solutions. I can't wrap my mind around the $60 trillion in credit default swaps. Despite the spa story about AIG, the truth is they ran through their $85 billion loan so quickly because of those CDS's. The truth is we can't bail out $60 trillion worth of CDS's. Frankly, that would be a hell of a better question for Barack Obama than William Ayers. Somebody should be asking BOTH candidates about the CDS's and how we can possibly control the bleed. Not to mention the derivatives (how much of them are out there, as mortgage backed securities?).

And, finally, my entire life I have lived during the Conservative Era, which has mostly reflected booms with a few recessions. In the end, I throw the Clinton Administration in with the Conservative Era because they largely went along with deregulation, although were softer than the hard Right Bush Administration. So although I do blame Republicans and Democrats, I think both parties were more right of center than in previous eras. Therefore, I think this financial crisis spells the end of the Conservative Era, and that is even if McCain were to pull out a win. He will never be able to govern as a conservative. That would not be politically possible given the emergency at hand. That is why I am still betting Obama will win this election -- may as well pick the real progressive who took out the Clinton machine in the primaries. I guess the question is whether Americans can see as clearly as I do that an era has come to an end.

[karynnj]

37. This is interesting _ Kerry NO, McCain YES

Here's the short story:

They passed this by putting it into H.R. 4577, the Consolidated Appropriations Act 2001 on June 30, 2000 . That bill funded a huge number of things. Labor HHS Education Appropriations; H.R. 5657 - Legislative Branch Appropriations; H.R. 5658 - Treasury Appropriations; H.R. 5666 - Miscellaneous Appropriations - except section 123 relating to the enactment of H.R. 4904; H.R. 5660 - Commodity Futures Modernization; H.R. 5661 - Medicare, Medicaid and SCHIP Benefits Improvement and Protection; H.R. 5662 - Community Renewal Tax Relief and Medical Savings Accounts; H.R. 5663 - New Markets Venture Capital Program; and H.R. 5667 - Small Business Reauthorization.

As you can see it is not related to anything in the bill and there were no votes on adding it that I can find. All the amendments voted on are on other things Kerry has one for more funding for computer literacy program, McCain to put filters on school's internet access - Kerry's failed, Mccain's passed.

Who voted for this: (NOT KERRY)
U.S. Senate Roll Call Votes 106th Congress - 2nd Session

as compiled through Senate LIS by the Senate Bill Clerk under the direction of the Secretary of the Senate

Vote Summary

Question: On Passage of the Bill (H.R. 4577, as amended )
Vote Number: 171 Vote Date: June 30, 2000, 10:53 AM
Required For Majority: 1/2 Vote Result: Bill Passed
Measure Number: H.R. 4577
Measure Title: A bill making appropriations for the Departments of Labor, Health and Human Services, and Education, and related agencies for the fiscal year ending September 30, 2001, and for other purposes.
Vote Counts: YEAs 52
NAYs 43
Not Voting 5
Vote Summary By Senator Name By Vote Position By Home State

Alphabetical by Senator Name
Abraham (R-MI), Yea
Akaka (D-HI), Nay
Allard (R-CO), Nay
Ashcroft (R-MO), Yea
Baucus (D-MT), Nay
Bayh (D-IN), Nay
Bennett (R-UT), Yea
Biden (D-DE), Nay
Bingaman (D-NM), Nay
Bond (R-MO), Yea
Boxer (D-CA), Not Voting
Breaux (D-LA), Yea
Brownback (R-KS), Nay
Bryan (D-NV), Nay
Bunning (R-KY), Nay
Burns (R-MT), Yea
Byrd (D-WV), Yea
Campbell (R-CO), Yea
Chafee, L. (R-RI), Yea
Cleland (D-GA), Yea
Cochran (R-MS), Yea
Collins (R-ME), Yea
Conrad (D-ND), Nay
Coverdell (R-GA), Yea
Craig (R-ID), Yea
Crapo (R-ID), Yea
Daschle (D-SD), Nay
DeWine (R-OH), Yea
Dodd (D-CT), Nay
Domenici (R-NM), Yea
Dorgan (D-ND), Nay
Durbin (D-IL), Nay
Edwards (D-NC), Nay
Enzi (R-WY), Yea
Feingold (D-WI), Nay
Feinstein (D-CA), Nay
Fitzgerald (R-IL), Yea
Frist (R-TN), Yea
Gorton (R-WA), Yea
Graham (D-FL), Nay
Gramm (R-TX), Nay
Grams (R-MN), Nay
Grassley (R-IA), Yea
Gregg (R-NH), Yea
Hagel (R-NE), Yea
Harkin (D-IA), Yea
Hatch (R-UT), Not Voting
Helms (R-NC), Nay
Hollings (D-SC), Yea
Hutchinson (R-AR), Yea
Hutchison (R-TX), Yea
Inhofe (R-OK), Yea
Inouye (D-HI), Not Voting
Jeffords (R-VT), Yea
Johnson (D-SD), Nay
Kennedy (D-MA), Nay
Kerrey (D-NE), Yea
Kerry (D-MA), Nay
Kohl (D-WI), Yea
Kyl (R-AZ), Yea
Landrieu (D-LA), Nay
Lautenberg (D-NJ), Nay
Leahy (D-VT), Not Voting
Levin (D-MI), Nay
Lieberman (D-CT), Nay
Lincoln (D-AR), Yea
Lott (R-MS), Yea
Lugar (R-IN), Yea
Mack (R-FL), Yea
McCain (R-AZ), Yea
McConnell (R-KY), Yea
Mikulski (D-MD), Nay
Moynihan (D-NY), Not Voting
Murkowski (R-AK), Yea
Murray (D-WA), Nay
Nickles (R-OK), Nay
Reed (D-RI), Nay
Reid (D-NV), Nay
Robb (D-VA), Nay
Roberts (R-KS), Yea
Rockefeller (D-WV), Nay
Roth (R-DE), Yea
Santorum (R-PA), Yea
Sarbanes (D-MD), Nay
Schumer (D-NY), Nay
Sessions (R-AL), Nay
Shelby (R-AL), Yea
Smith (R-NH), Nay
Smith (R-OR), Yea
Snowe (R-ME), Yea
Specter (R-PA), Yea
Stevens (R-AK), Yea
Thomas (R-WY), Yea
Thompson (R-TN), Yea
Thurmond (R-SC), Yea
Torricelli (D-NJ), Nay
Voinovich (R-OH), Nay
Warner (R-VA), Yea
Wellstone (D-MN), Nay
Wyden (D-OR), Nay

Now the detail:
Here is the "all Congressional actions" section
"H.R.5660
Title: To reauthorize and amend the Commodity Exchange Act to promote legal certainty, enhance competition, and reduce systemic risk in markets for futures and over-the-counter derivatives, and for other purposes.
Sponsor: Rep Ewing, Thomas W. (introduced 12/14/2000) Cosponsors (4)
Related Bills: H.R.4577, S.3283
Latest Major Action: 12/14/2000 House committee/subcommittee actions. Status: Referred to the Subcommittee on Finance & Hazardous Materials for a period to be subsequently determined by the Chairman..
Note: H.R. 5660 was incorporated by reference in the conference report to H.R. 4577. H.R. 4577, the Consolidated Appropriations Act 2001, became Public Law 106-554 on 12/21/2000.ALL ACTIONS:

12/14/2000:
Sponsor introductory remarks on measure. (CR E2181-2182)
12/14/2000:
Referred to the Committee on Agriculture, and in addition to the Committees on Banking and Financial Services, Commerce, and the Judiciary, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned.
12/14/2000:
Referred to House Agriculture
12/14/2000:
Referred to House Banking and Financial Services
12/14/2000:
Referred to House Commerce

12/14/2000:
Referred to the Subcommittee on Finance & Hazardous Materials for a period to be subsequently determined by the Chairman..

12/14/2000:
Referred to House Judiciary "

Here is what was under CRS summary
"H.R.5660
Title: To reauthorize and amend the Commodity Exchange Act to promote legal certainty, enhance competition, and reduce systemic risk in markets for futures and over-the-counter derivatives, and for other purposes.
Sponsor: Rep Ewing, Thomas W. (introduced 12/14/2000) Cosponsors (4)
Related Bills: H.R.4577, S.3283
Latest Major Action: 12/14/2000 House committee/subcommittee actions. Status: Referred to the Subcommittee on Finance & Hazardous Materials for a period to be subsequently determined by the Chairman..
Note: H.R. 5660 was incorporated by reference in the conference report to H.R. 4577. H.R. 4577, the Consolidated Appropriations Act 2001, became Public Law 106-554 on 12/21/2000.SUMMARY AS OF:
12/14/2000--Introduced.

TABLE OF CONTENTS:

* Title I: Commodity Futures Modernization
* Title II: Coordinated Regulation of Security Futures
* Subtitle A: Securities Law Amendments
* Subtitle B: Amendments to the Commodity Exchange Act
* Title III: Legal Certainty for Swap Agreements
* Title IV: Regulatory Responsibility for Bank Products

Commodity Futures Modernization Act of 2000 - Title I: Commodity Futures Modernization - Amends the Commodity Exchange Act to authorize appropriations for authorities and activities under such Act.

Revises specified provisions, including: (1) over-the-counter derivatives; (2) futures exchange regulation; (3) contracts; (4) prohibited transactions; and (5) boards of trade.

Title II: Coordinated Regulation of Security Futures Products - Subtitle A: Securities Law Amendments - Amends the Securities Exchange Act of 1934 respecting: (1) regulatory relief for markets and intermediaries trading security futures products; and (2) and interagency cooperation.

Subtitle B: Amendments to the Commodity Exchange Act - Amends the Commodity Exchange Act respecting Securities and Exchange Commission jurisdiction.

Title III: Legal Certainty for Swap Agreements - Amends the Gramm-Leach-Bliley Act, the Securities Act of 1933, and the Securities Exchange Act of 1934 respecting swap agreements.

Title IV: Regulatory Responsibility for Bank Products - Legal Certainty for Bank Products Act of 2000 - Excludes specified banking products and swap agreements from Commodity Futures Exchange Commission coverage. "



http://thomas.loc.gov/cgi-bin/bdquery/z?d106:H.R.5660:

Here is the House Sponsor's introduction:
THE COMMODITY FUTURES MODERNIZATION ACT OF 2000 -- HON. THOMAS W. EWING (Extensions of Remarks - December 14, 2000)



---

HON. THOMAS W. EWING
OF ILLINOIS
IN THE HOUSE OF REPRESENTATIVES
Thursday, December 14, 2000

* Mr. EWING. Mr. Speaker, today, I am introducing the Commodity Futures Modernization Act of 2000 which provides us with an historic opportunity to modernize the U.S. futures and over-the-counter market laws.

* The time is now to ensure that the United States continued to be the world's financial leader. We have two of the three largest futures exchanges in the world, however, our antiquated laws and regulations prevent them from being as efficient and effective as possible to compete in global markets. The legal uncertainty surrounding the U.S. over-the-counter markets must be removed to prevent domestic business from migrating overseas and causing our share of these $90 trillion markets to shrink.

* The Commodity Futures Modernization Act of 2000 contains the major provisions of the House passed H.R. 4541. These provisions are in titles I and II of the legislation and provide regulatory relief for the domestic futures exchanges, legal certainty for over-the-counter products, and allow for the trading of single stock futures.

* This latest version of the legislation adds two new titles not included in the original House passed bill. Title III, Legal Certainty for Swap Agreements, provides guidelines for the SEC's role in regulating swaps.

* Title IV, the ``Legal Certainty for Bank Products Act of 2000'', excludes identified banking products from the Commodity Exchange Act. It provides guidelines to determine the proper regulator for hybrid products. If the regulators do not agree on who should regulate a product, the court will decide.

* Senator LUGAR and Senator GRAMM have worked tirelessly in the Senate, with the



House, and with the Administration to make this bill possible.

* Secretary Summers in coordination with Chairman Rainer and Chairman Levitt and countless numbers of their staff put in many hours working through this language to reach agreement.

* Finally, I would like to thank Chairman COMBEST, Chairman LEACH, Chairman BLILEY and all the Ranking Members who have worked so hard on this legislation, particularly to pass the H.R. 4541 version of this bill through the House, and to produce the final package we have presented today. Everyone involved and their staff should be commended for their extraordinary efforts.

* It is my hope that this legislation will enable America to continue being the world leader in financial markets for decades to come.

Here is the information on HR 4541, that is mentioned above as having had similar provisions:

FINAL VOTE RESULTS FOR ROLL CALL 540
(Republicans in roman; Democrats in italic; Independents underlined)

H R 4541 2/3 YEA-AND-NAY 19-Oct-2000 7:02 PM
QUESTION: On Motion to Suspend the Rules and Pass, as Amended
BILL TITLE: Commodity Futures Modernization Act

Yeas Nays PRES NV
Republican 194 2 25
Democratic 181 2 26
Independent 2
TOTALS 377 4 51


---- YEAS 377 ---

Abercrombie
Aderholt
Allen
Andrews
Archer
Armey
Baca
Bachus
Baird
Baldacci
Baldwin
Ballenger
Barcia
Barr
Barrett (NE)
Barrett (WI)
Bartlett
Barton
Bass
Becerra
Bentsen
Bereuter
Berkley
Berman
Berry
Biggert
Bilbray
Bishop
Blagojevich
Bliley
Blumenauer
Blunt
Boehlert
Boehner
Bonilla
Bonior
Bono
Borski
Boswell
Boyd
Brady (TX)
Brown (FL)
Brown (OH)
Bryant
Burr
Burton
Buyer
Callahan
Calvert
Camp
Canady
Cannon
Capps
Capuano
Cardin
Carson
Castle
Chabot
Chambliss
Clayton
Clement
Clyburn
Coble
Coburn
Collins
Combest
Condit
Cook
Costello
Cox
Coyne
Cramer
Crane
Crowley
Cubin
Cummings
Cunningham
Danner
Davis (FL)
Deal
DeGette
Delahunt
DeLauro
Deutsch
Dickey
Dicks
Dingell
Dixon
Doggett
Dooley
Doolittle
Doyle
Dreier
Duncan
Dunn
Edwards
Ehlers
Ehrlich
Emerson
Engel
English
Eshoo
Etheridge
Evans
Ewing
Farr
Fattah
Fletcher
Foley
Ford
Fossella
Fowler
Frank (MA)
Frelinghuysen
Frost
Gallegly
Ganske
Gejdenson
Gekas
Gibbons
Gilchrest
Gillmor
Gilman
Gonzalez
Goode
Goodlatte
Goodling
Gordon
Goss
Graham
Granger
Green (WI)
Greenwood
Gutierrez
Gutknecht
Hall (OH)
Hall (TX)
Hastings (FL)
Hastings (WA)
Hayes
Hayworth
Hefley
Herger
Hill (IN)
Hill (MT)
Hilleary
Hilliard
Hinchey
Hinojosa
Hobson
Hoeffel
Hoekstra
Holden
Holt
Hooley
Horn
Hostettler
Houghton
Hoyer
Hulshof
Hunter
Hutchinson
Hyde
Inslee
Isakson
Istook
Jackson (IL)
Jefferson
Jenkins
John
Johnson (CT)
Johnson, E. B.
Johnson, Sam
Jones (NC)
Kanjorski
Kaptur
Kasich
Kelly
Kennedy
Kildee
Kilpatrick
Kind (WI)
King (NY)
Kingston
Kleczka
Knollenberg
Kolbe
Kucinich
Kuykendall
LaFalce
LaHood
Lampson
Lantos
Largent
Larson
Latham
LaTourette
Leach
Lee
Levin
Lewis (GA)
Lewis (KY)
Linder
LoBiondo
Lofgren
Lowey
Lucas (KY)
Lucas (OK)
Luther
Maloney (CT)
Maloney (NY)
Manzullo
Markey
Martinez
Mascara
Matsui
McCarthy (MO)
McCarthy (NY)
McCrery
McDermott
McGovern
McHugh
McIntyre
McKeon
McKinney
McNulty
Meehan
Meek (FL)
Meeks (NY)
Menendez
Mica
Millender-McDonald
Miller, Gary
Miller, George
Minge
Mink
Moakley
Mollohan
Moore
Moran (KS)
Moran (VA)
Morella
Murtha
Myrick
Nadler
Napolitano
Neal
Nethercutt
Ney
Northup
Norwood
Nussle
Obey
Olver
Ortiz
Ose
Packard
Pallone
Pastor
Payne
Pease
Pelosi
Peterson (MN)
Peterson (PA)
Petri
Phelps
Pickering
Pickett
Pitts
Pombo
Pomeroy
Porter
Portman
Price (NC)
Pryce (OH)
Quinn
Radanovich
Rahall
Ramstad
Rangel
Regula
Reyes
Reynolds
Riley
Rivers
Roemer
Rogers
Rohrabacher
Ros-Lehtinen
Rothman
Roukema
Roybal-Allard
Royce
Ryan (WI)
Ryun (KS)
Sabo
Salmon
Sanders
Sandlin
Sanford
Sawyer
Saxton
Scarborough
Schaffer
Schakowsky
Scott
Sensenbrenner
Serrano
Sessions
Shadegg
Sherman
Sherwood
Shimkus
Shows
Simpson
Skeen
Skelton
Slaughter
Smith (NJ)
Smith (TX)
Smith (WA)
Snyder
Souder
Spence
Stabenow
Stark
Stearns
Stenholm
Strickland
Stump
Stupak
Sununu
Sweeney
Tancredo
Tanner
Tauscher
Tauzin
Taylor (NC)
Terry
Thomas
Thompson (CA)
Thornberry
Thune
Thurman
Tiahrt
Tierney
Toomey
Towns
Traficant
Udall (CO)
Udall (NM)
Upton
Velazquez
Visclosky
Vitter
Walden
Walsh
Wamp
Waters
Watkins
Watt (NC)
Watts (OK)
Waxman
Weiner
Weldon (FL)
Weldon (PA)
Weller
Wexler
Whitfield
Wicker
Wilson
Wolf
Woolsey
Wu
Wynn
Young (AK)
Young (FL)

---- NAYS 4 ---

DeFazio
Paul
Smith (MI)
Taylor (MS)

---- NOT VOTING 51 ---

Ackerman
Baker
Bilirakis
Boucher
Brady (PA)
Campbell
Chenoweth-Hage
Clay
Conyers
Cooksey
Davis (IL)
Davis (VA)
DeLay
DeMint
Diaz-Balart
Everett
Filner
Forbes
Franks (NJ)
Gephardt
Green (TX)
Hansen
Jackson-Lee (TX)
Jones (OH)
Klink
Lazio
Lewis (CA)
Lipinski
McCollum
McInnis
McIntosh
Metcalf
Miller (FL)
Oberstar
Owens
Oxley
Pascrell
Rodriguez
Rogan
Rush
Sanchez
Shaw
Shays
Shuster
Sisisky
Spratt
Talent
Thompson (MS)
Turner
Weygand
Wise

[karynnj]

38. Here is the matching Senate Bill - sponsored by Lugar

S.2697
Title: A bill to reauthorize and amend the Commodity Exchange Act to promote legal certainty, enhance competition, and reduce systemic risk in markets for futures and over-the-counter derivatives, and for other purposes.
Sponsor: Sen Lugar, Richard G. (introduced 6/8/2000) Cosponsors (2)
Related Bills: H.R.4541
Latest Major Action: 8/25/2000 Placed on Senate Legislative Calendar under General Orders. Calendar No. 766.
Senate Reports: 106-390
Jump to: Summary, Major Actions, All Actions, Titles, Cosponsors, Committees, Related Bill Details, Amendments
SUMMARY AS OF:
8/25/2000--Reported to Senate amended. (There is 1 other summary)

Commodity Futures Modernization Act of 2000 - Amends the Commodity Exchange Act (Act) to define specified terms.

(Sec. 4) Excludes the following agreements, contracts, and transactions, except as otherwise provided for, from coverage under the Act: (1) foreign currency, other than those transactions conducted on an organized exchange between specified regulated entities and persons who are not eligible contract participants; (2) government securities; (3) security warrants; (4) security rights; (5) sales and resales of installment loan contracts; (6) purchase and repurchase transactions in an excluded commodity; or (7) mortgages or mortgage purchase agreements.

(Sec. 5) Excludes from coverage under the Act a transaction in an excluded commodity: (1) entered into between eligible contract participants and not executed on a trading facility; or (2) executed on electronic trading facilities as long as the transaction is entered into on a principal-to-principal basis by eligible contract participants trading for themselves.

(Sec. 6) Excludes from coverage under the Act electronic trading of excluded and exempt commodities. States that a board of trade designated as a contract market or derivatives transaction execution facility may establish and operate an electronic trading facility.

(Sec. 7) Excludes from coverage under the Act a hybrid instrument that is predominantly a security or deposit instrument.

(Sec. 8) Excludes from coverage under the Act over-the-counter equity instruments.

Prohibits the Commodity Futures Trading Commission (Commission) from designating a board of trade as a contract market in options on securities. Includes within the coverage of the Act, and gives the Commission exclusive jurisdiction over, the trading of nondesignated futures on securities on a contract market.

Authorizes the trading of designated futures on securities on designated contract markets and national securities exchanges or associations.

Authorizes the Securities and Exchange Commission (SEC), after notifying the Commission, to enforce insider trading laws with respect to futures on securities contracts listed on a contract market.

Sets forth margin provisions. Authorizes the Board of Governors of the Federal Reserve System to establish an intermarket margin board.

Requires registered futures associations to adopt customer suitability standards.

Expresses the sense of the Senate that Congress should take harmonizing action with respect to the tax treatment and transaction fees of equity options and designated futures on securities.

(Sec. 9) Excludes from coverage under the Act certain nonagricultural transactions between eligible contract participants not executed on a trading facility.

(Sec. 10) Revises public interest protection and prohibited transaction provisions.

(Sec. 12) Provides for designation of boards of trade as contract markets. Sets forth designation and status maintenance criteria.

(Sec. 13) Authorizes a board of trade, in lieu of compliance with contract market designation requirements, to elect to operate as a registered derivatives transaction execution facility if: (1) designated as a contract market; or (2) registered as a derivatives transaction execution facility. Sets forth related trading requirements and registration criteria and core principles.

(Sec. 14) Requires a derivatives clearing organization to register with the Commission unless it is registered with another Federal regulator and does not clear futures. (Permits voluntary registration with the Commission in such instance.)

(Sec. 15) Amends the Act to permit the Commission to issue or approve interpretations of acceptable business practices under core provisions for all registered entities (contract markets, derivatives clearing organizations, derivatives transaction execution facilities).

Permits a registered entity to: (1) delegate functions to a registered futures association or other registered entity; and (2) trade new products.

(Sec. 16) Authorizes a board of trade to elect to operate as an exempt board of trade if: (1) the commodity underlying the trade has a nearly inexhaustible delivery supply, is not susceptible to manipulation, or has no cash market; (2) the futures contracts are entered into only by eligible contract participants; and (3) the contracts do not involve securities. Subjects exempt-board futures contracts to antimanipulation provisions and Commission jurisdiction.

(Sec. 17) Subjects a registered entity to suspension or revocation of designation for noncompliance with provisions of the Act.

(Sec. 18) Authorizes appropriations through FY 2005.

(Sec. 19) Revises preemption provisions.

(Sec. 20) Permits predispute resolution agreements for institutional customers.

(Sec. 21) Requires the Commission to consider the costs and benefits of its action before issuing an order or regulation, with exceptions for emergency actions or adjudicatory or investigative matters.

(Sec. 22) States that an agreement, contract, or transaction between eligible parties shall not be voidable or unenforceable solely because of a failure to comply with the terms of an exemption or exclusion from any provision of the Act or Commission regulation.

(Sec. 23) States that nothing in this Act gives the SEC or the Commission jurisdiction over swap agreement.

(Sec. 24) Repeals deficiency order provisions.

(Sec.25) Makes technical and conforming amendments.
MAJOR ACTIONS:

6/8/2000 Introduced in Senate
8/25/2000 Committee on Agriculture, Nutrition, and Forestry. Reported by Senator Lugar under authority of the order of the Senate of 07/26/2000 with an amendment in the nature of a substitute. With written report No. 106-390.
8/25/2000 Placed on Senate Legislative Calendar under General Orders. Calendar No. 766.
ALL ACTIONS:

6/8/2000:
Sponsor introductory remarks on measure. (CR S4823-4827)

6/21/2000:
Committees on Agriculture, Nutrition, and Forestry. Joint hearings held jointly with the Committee on Banking, Housing, and Urban Affairs. Hearings printed: S.Hrg. 106-922.

6/8/2000:
Read twice and referred to the Committee on Agriculture, Nutrition, and Forestry.

6/29/2000:
Committee on Agriculture, Nutrition, and Forestry. Ordered to be reported with an amendment in the nature of a substitute favorably.

8/25/2000:
Committee on Agriculture, Nutrition, and Forestry. Reported by Senator Lugar under authority of the order of the Senate of 07/26/2000 with an amendment in the nature of a substitute. With written report No. 106-390.
8/25/2000:
Placed on Senate Legislative Calendar under General Orders. Calendar No. 766.

TITLE(S): (italics indicate a title for a portion of a bill)

* SHORT TITLE(S) AS INTRODUCED:
Commodity Futures Modernization Act of 2000

* SHORT TITLE(S) AS REPORTED TO SENATE:
Commodity Futures Modernization Act of 2000

* OFFICIAL TITLE AS INTRODUCED:
A bill to reauthorize and amend the Commodity Exchange Act to promote legal certainty, enhance competition, and reduce systemic risk in markets for futures and over-the-counter derivatives, and for other purposes.

COSPONSORS(2), ALPHABETICAL : (Sort: by date)


Sen Fitzgerald, Peter - 6/8/2000
Sen Gramm, Phil - 6/8/2000

COMMITTEE(S):

Committee/Subcommittee: Activity:
Senate Agriculture, Nutrition, and Forestry Referral, Hearings, Markup, Reporting
Senate Banking, Housing, and Urban Affairs Hearings

RELATED BILL DETAILS: (additional related bills may be indentified in Status)

Bill: Relationship:
H.R.4541 Related bill as identified by the House Clerk's office

[karynnj]

40. Lugar's speech introducing it

SPEECH OF
HON. EDWARD J. MARKEY

OF MASSACHUSETTS
IN THE HOUSE OF REPRESENTATIVES
Thursday, October 19, 2000

* Mr. MARKEY. Mr. Speaker, I rise in support of the motion to suspend the rules and pass the bill, H.R. 4541.

* I reluctantly intend to vote for this bill today, despite the fact that I have some very serious concerns about both the process that has brought this bill to the floor and some of its provisions.

* Let me speak first to the process. In the Commerce Committee, Democratic members worked cooperatively with the Republican majority to craft a bipartisan bill that addressed investor protection, market integrity, and competitive parity issues raised by the original Agriculture Committee version of the bill. As a result, we passed our bill with unanimous bipartisan support. Following that action, we stood ready to work with members of the Banking and Agriculture Committees to reconcile our three different versions of the bll and prepare it for House floor action. But after just a few bipartisan staff meetings, the Democratic staff was told that Democrats would henceforth be excluded from all future meetings, and that the Republican majority leader was going to take the lead in drafting the bill. What's more, we were also told the chairman of the Senate Banking Committee was invited into those negotiations--despite the fact that this bill comes within the Agriculture Committee's jurisdiction over in the Senate and the Senate has not even passed a CEA bill. In fact, the Senate Agriculture Committee decided not to include the swaps provisions sought by the chairman of the Senate Banking Committee when the committee reported S . 2697 , because these proposals were viewed as so controversial.

* We then went through a period of several weeks in which the Republican majority staff caucused behind closed doors. The product that resulted from those negotiations was so seriously flawed that it was opposed by Treasury, the SEC, the CFTC, the New York Stock Exchange, the NASDAQ, and all of the Nation's stock and options exchanges, the entire mutual fund industry, and even some of the commodities exchanges. Democrats, the administration, the CFTC, and the SEC suggested a number of changes to fix the many flaws in this language, and over the last several days many of them have been accepted. That is a good thing. But I would say to the majority, if you had simply continued to work with us and to allow our staffs to meet with your staffs, we could have resolved our differences over this bill weeks ago. We shouldn't have had to communicate our concerns through e-mails and third parties. We really should be allowing our staffs to meet and talk to each other.

* Having said that, let me turn to the substance of this bill. There are two principal areas I want to focus on--legal certainty and single stock futures.

* With regard to legal certainly, I frankly think this whole issue is overblown. Congress added provisions to the Futures Trading Practices Act of 1992 that give the CFTC the authority to exempt over-the-counter swaps and other derivatives from the Commodities Exchange Act--without having to even determine whether such products were futures. I served as a conferee when we worked out this language, and it was strongly supported by the financial services industry.

* Now we are told we need to fix the ``fix'' we made to the law back then. But, I would note that when former CFTC Chair Brooksley Born opened up the issue of whether these exclusions should be modified, she was quickly crushed. The other financial regulators immediately condemned her for even raising the issue and the Congress quickly attached a rider to an appropriations bill to block her from moving forward. The swaps industry was never in any real danger of having contracts invalidated on the basis of the courts declaring them to be illegal futures. They were only in danger of having the CFTC ``think'' about whether to narrow or change their exemptions. But the CFTC was barred from doing even that!

* What we are doing in this bill is saying--O.K.--we are going to take OTC swaps between ``eligible contract participants'' out of the CEA. They are excluded from the act.

* Now, I don't have any problem with that. If the swaps dealers feel more comfortable with a statutory exclusion for sophisticated counterparties instead of CFTC exemptive authority, and the Agriculture Committee is willing to agree to an exclusion that makes sense, that's fine with me. However, I am not willing to allow ``legal certainty'' to become a guise for sweeping exemptions from the antifraud or market manipulation provisions of the securities laws. That is simply not acceptable.

* While some earlier drafts of this bill would have done precisely that, the bill we are considering today does not. That is a good thing, and that is why I am willing to support the legal certainty language today. However, I do have some concerns about how we have defined ``eligible contract participant''--that is, the sophisticated institutions that will be allowed to play in the swaps market with little or no regulation.

* The bill before us today lowers the threshold for who will is an ``eligible contract participant'' far below what the Commerce Committee had allowed. I fear that this could create a potential regulatory gap for retail swap participants that ultimately must be addressed.

* The term ``eligible contract participant'' now includes some individuals and entities, who should be treated as retail investors--those who own and invest on a discretionary basis less than $50 million in investments. These are less sophisticated institutions and individuals, and they are more vulnerable to fraud or abusive sales practices in connection with these very complex financial instruments. If Banker's Trust can fool Procter and Gamble and Gibson Greetings about the value of their swaps what chance does a small municipal treasurer or a small business user of one of these products have?

* For example, under one part of this definition, an individual with total assets in excess of only $5 million who uses a swap to manage certain risks is an ``eligible contract participant'' for that swap. I think that threshold is simply too low.

* I don't believe that removal of these retail swap participants from the protections of the CEA makes sense, unless the bill makes clear that other regulatory protections will apply.

* To this end, the Commerce Committee version of H.R. 4541 would have required that certain individuals or entities who own and invest on a discretionary basis less than $50 million in investments, and who otherwise would meet the definition of ``eligible contract participant,'' would not be ``eligible contract participants'' unless the counterparty for their transaction was a regulated entity, such as a broker-dealer or a bank. That helps assure that they are not doing business with some totally fly-by-night entity, but with someone who is subject to some level of federal oversight and supervision. It is not a guarantee that the investor still won't be ripped off. But it helps make it less likely.

* The bill we are considering today weakens this requirement. The Commerce provision only applies to governmental entities as opposed to individual investors; the threshold for application of the provision to such entities is lowered to $25 million; and the list of permissible counterparties to the swap is expanded to include some unregulated entities.

* I believe the original Commerce Committee investor protection provision should be fully restored. Moreover, the bill should clarify explicitly that counterparties who may enter into transactions with retail ``eligible contract participants'' are subject for such transactions to the antifraud authority of their primary regulators.

GPO's PDF

* I also have some concerns with the breadth of the exemption in section 106 of this bill, and its potential anticompetitive and anticonsumer effects. There may be less anticompetitive ways to address an energy swaps exemption in a way that provides for fair competition and adequate consumer protections in this market. Such a result would be in the public interest. What is currently in the bill is not, and I would hope that it could be fixed as this bill moves forward.

* Let met now turn to the provisions of this bill that would allow the trading of stock futures. These new

* Now, I have serious reservations about the impact of single stock futures on our securities markets. In all likelihood, these products are going to be used principally by day traders and other speculators. Now, there is nothing inherently wrong with speculation. It can be an important source of liquidity in the financial markets. But one of the purposes of the federal securities laws has traditionally been to control excessive speculation and excessive and artificial volatility in the markets, and to limit the potential for markets to be manipulated or used to carry out insider trading or other fraudulent schemes.

* I am concerned about the prospect for single stock futures to contribute to speculation, volatility, market manipulation, insider trading, and other frauds. That is why it is so important for the Congress to make sure that if these products are permitted, that they are regulated as securities and are subject to the same types of antifraud and sales practice rules that are otherwise applied to other securities. I think that this bill, if the SEC and the CFTC properly administer it, can do that.

* First, with respect to excessive speculation, the current bill provides that the margin treatment of stock futures must be consistent with the margin treatment for comparable exchange-traded options. This ensures that (1) stock futures margin levels will not be set at dangerously low levels and (2) stock futures will not have unfair competitive advantage vis-a 2-vis stock options.

* The bill provides that the margin requirements for security future products shall be consistent with the margin requirements for comparable option contracts traded on a securities exchange registered under section 6(a) of the Exchange Act of 1934.

* A provision in the bill directs that initial and maintenance margin levels for a security future product shall not be lower than the lowest level of margin, exclusive of premium, required for any comparable option contract traded on any exchange registered pursuant to section 6(a) of the Exchange Act of 1934. In that provision, the term lowest is used to clarify that in the potential case where margin levels are different across the options exchanges, security future product margin levels can be based off the margin levels of the options exchange that has the lowest margin levels among all the options exchanges. It does not permit security future product margin levels to be based on option maintenance margin levels. If this provision were to be applied today, the required initial margin level for security future products would be 20 percent, which is the uniform initial margin level for short at-the-money equity options traded on U.S. options exchanges.

* Second, with respect to market volatility, the bill subjects single stock futures to the same rules that cover other securities, including circuit breakers and market emergency requirements.

* Third, with respect to fraud and manipulation, the bill subjects single stock futures to the same type of rules that are in place for all other securities. These include the prohibitions against manipulation, controlling person liability for aiding and abetting, and liability for insider trading.

* Fourth, among the bill's most important provisions are those requiring the National Futures Association to adopt sales practice and advertising rules comparable to those of the National Association of Securities Dealers. Under the bill, the NEA will submit rule changes related to sale practices to the SEC for the Commission's review. Because investors can use single stock futures as a substitute for the underlying stock, they will expect and should receive the same types of protections they receive for their stock purchases. It is significant that in its new role, the NFA will be subject to SEC oversight as a limited purpose national securities association. The SEC is very familiar with the sales practice rules necessary to protect investors. I expect the NFA to work closely with the SEC to ensure such protections apply to all investors in security futures products regardless of the type of intermediary--broker-dealer or futures commission merchant--that offers the product.

* Fifth, the bill applies important consumer and investor protections found in the Investment Company Act of 1940 to pools of single stock futures. This ensures that investors in pools of single stock futures will enjoy the same protections as other investors in other funds that invest in securities.

* In addition to these provisions, the bill also addresses a number of other important matters. It allows for coordinated clearance and settlement of single stock futures. It assures that securities futures are subject to the same transaction fees applicable to other securities. It requires decimal trading. And it provides Treasury with the authority to write rules to assure tax parity, so that single stock futures do not have tax advantages over stock options.

* In addition to these provisions, the bill represents a substantial change from the status quo in which the SEC and the CFTC have shared responsibility for ensuring that all futures contracts on securities indexes meet requirements designed to ensure, among other things, that they are not readily susceptible to manipulation.

* This bill gives the CFTC the sole responsibility for ensuring that index futures contracts within their exclusive jurisdiction meet the standards set forth in this bill. Most important among these requirements is that a future on a security index not be readily susceptible to manipulation. Because the futures contract potentially could be used to manipulate the market for the securities underlying an index, it is critical that the CFTC be vigilant in this responsibility. Relying solely on the market trading the product to assess whether it meets the statutory requirements is not enough.

* In particular, the CFTC should consider the depth and liquidity of the secondary market, as well as the market capitalization, of those securities underlying an index futures contract. Perhaps even more importantly, the CFTC should require that a market that wants to offer futures on securities indexes to U.S. investors--whether it is a U.S. or foreign market--have a surveillance sharing agreement with the market or markets that trade securities underlying the futures contract. The CFTC should require that these surveillance agreements authorize the exchange of information between the markets about trades, the clearing of those trades, and the identification of specific customers. This information should also be available to the regulators of those markets.

* Finally, if a foreign market or regulator is unable or unwilling to share information with U.S. law enforcement agencies when needed, they should not be granted the privilege of selling their futures contracts to our citizens.

* There is one other important matter that I had hoped would be satisfactorily resolved today, but unfortunately, it has not. Last night, the Republican staff deleted language that appeared in earlier drafts that would have amended section 15(i)(6)(A) of the Securities Exchange Act of 1934 to clarify that single-stock futures, futures based on narrow stock indices, and options on such futures contracts (``security futures products'') are not ``new hybrid products''. I believe that this deleted language should have been reinserted into the legislation.

* Let me explain why. Currently, a new hybrid product is defined as a product that was not regulated as a security prior to November 12, 1999, and that is not an identified banking product under section 206 of the Gramm-Leach-Bliley act. Unless an amendment to the definition is made, security futures products potentially would fall within this definition.

* Section 15(i) of the 1934 act provides that the Securities and Exchange Commission must consult with the Federal Reserve Board before commencing a rulemaking concerning the imposition of broker-dealer registration requirements with respect to new hybrid products. Section 15(i) also empowers the Federal Reserve Board to challenge such a rulemaking in court.

* This provision was never intended to apply to situations where the Congress has decided by law to expand the definition of securities. What we are doing today in this bill is establishing a comprehensive regulatory system for the regulation of security futures products. Under this system, it is clear that intermediaries that trade securities futures products must register with the

* H.R. 4541 rests on a system of joint regulation. That means that both the SEC and the CFTC are assigned specific tasks designed to maintain fair and orderly markets for these security futures products.

* Amending the language on page 170 to exclude securities regulation of security futures only because they are sold by banks would create an anomalous result. A bank selling securities futures could register with the CFTC as a futures commission merchant but, unlike other entities, it might not have to notice register with the SEC. Effectively, half of the regulatory framework that the SEC and CFTC negotiated over with the Congress for many months would disappear. There is no public interest to be served in eliminating SEC oversight over issues such as insider trading frauds, market manipulation, and customer

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sales practice rules just because a bank traded the security.

* The role of the Federal Reserve Board with respect to new hybrid products would be at odds with the regulatory structure for security futures products under H.R. 4541. There is no reason to undermine the structure of H.R. 4541 by giving the Federal Reserve Board a role in the regulation of broker-dealers that trade securities futures products.

* If this provision remains in the bill, I believe that in order to comply with the intent of Congress, as expressed in title II of this bill, the SEC would have to proceed by rule to require all bank Futures Commission Merchants seeking to sell single stock futures to, at minimum, notice register with the SEC. In addition, the CFTC would have to bar bank futures commission merchants from selling the product unless they have notice registered with the SEC. This is a convoluted way of dealing with a drafting problem that we could and should fix right now, but it is the only way to prevent gaping loopholes from opening up that could harm investors.

* Because there has been an effort over the last several days to address some of the concerns that Democrats have had about tax parity, swaps language in section 107 of the bill, mutual fund language, and numerous other important provisions, I am reluctantly going to vote for this bill today. It is not the bill I would have crafted. It still contains some serious flaws. But it is a much better bill than the bill that passed out of the Agriculture Committee.

* However, I must also say that if, when this bill goes over to the other body, some of the outrageous and anticonsumer provisions that were deleted from the House bill in recent days are to be restored, or other equally objectionable new provisions are added, I will fight hard to defeat this bill. And so, I would suggest to the financial services industry and to the administration, if you really want to get this bill done this year, you need to forcefully resist anticonsumer or anticompetitive changes to the legal certainty language, the tax parity language, the single stock futures language, and instead strengthen the consumer and market integrity and competitive provisions of the bill in the manner I have just described.

* I look forward to working with Members on the other side of the aisle and in the other body to achieve that goal. And I hope that we can have more of a direct dialog on this bill as it moves forward than we have had over the last few weeks. and the CFTC on stock index futures and other options.

Meant as a temporary agreement, many have suggested that the Shad-Johnson accord should be repealed. The President's Working Group unanimously agreed that the Accord can be repealed if regulatory disparities are resolved between the regulation of futures and securities. Recently, the General Accounting Office (GAO) released a report that found that there is no legitimate policy reasons for maintaining the ban on single stock futures since they are being traded in foreign markets, in the OTC market, and synthetically in the options markets. Senator GRAMM, chairman of the Senate Banking Committee, and I sent a letter in December requesting the CFTC and the SEC to make recommendations on reforming the Shad-Johnson. On March 2, the SEC and CFTC responded that, although progress had been made, the agencies could not resolve these issues before October. Disappointment with this answer led Senator GRAMM and I to once again ask SEC Chairman Arthur Levitt and CFTC Chairman Bill Rainer to attempt to resolve the problems surrounding lifting the ban. Unfortunately, the agencies were not able to reach an agreement within our time-frame.

This legislation would repeal the prohibition on single stock futures and narrow-based stock index futures. It would allow these products, termed designated futures on securities, to trade on either a CFTC-regulated contract market or a SEC-regulated national securities exchange or association. The SEC would maintain its insider trading and antifraud enforcement authority over these products traded on a contract market and the CFTC would maintain its anti-manipulation authority, including large trader reporting, over these products traded on a national securities exchange or association. Margin levels on these products would be harmonized with the options markets. The bill would provide the regulators with one year after enactment to resolve any remaining issues.

The goal of this legislation is to ensure that the United States remains a global leader in the derivatives marketplace and that these markets are appropriately and effectively regulated. Due to the shortened legislative calendar in this election year, it will be difficult to pass this bill without momentum and a strong base of support. If Congress fails to enact a bill, we will begin the debate again next year. However, in this technology-driven economy, a one year delay is an eternity. Legal uncertainty for OTC derivatives will remain and our futures markets will continue to lose market share due in part to an outdated regulatory structure. For this reason, it is imperative that Congress enact thoughtful legislation this year when it has a golden opportunity to do so.

I ask unanimous consent that a section by section analysis of this bill be included in the RECORD immediately after my statement.

There being no objection, the material was ordered to be printed in the RECORD, as follows:

Section-by-Section Analysis--Commodity Futures Modernization Act of 2000

SEC. 1. SHORT TITLE AND TABLE OF CONTENTS. The Act is entitled the Commodity Futures Modernization Act of 2000

SEC. 2. PURPOSES. The section lists 8 purposes for the bill including reauthorizing and streamlining the Commodity Exchange Act (CEA); eliminating unnecessary regulation for the futures exchanges; clarifying the jurisdiction of the CFTC over certain retail foreign currency transactions; transforming the role of the Commodities Futures Trading Commission (CFTC); providing a legislative and regulatory framework for the trading of futures on securities; promoting innovation and reducing systemic risk for futures and over-the-counter (OTC) derivatives; allowing clearing of OTC derivatives and enhancing the competitive position of the U.S. financial institutions and markets.

SEC. 3. DEFINITIONS. Adds definitions to section 1(a) of the CEA for the following terms: derivatives clearing organizations; designated future on a security; electronic trading facility; eligible contract participant; energy commodity; exclusion-eligible commodity; exempted security; financial commodity; financial institution, hybrid instrument; national securities exchange; option organized exchange; registered entity; security and trading facility.

SEC. 4. AGREEMENTS, CONTRACTS, AND TRANSACTIONS IN FOREIGN CURRENCY, GOVERNMENT SECURITIES AND CERTAIN OTHER COMMODITIES. Strikes 2(a)(1)(A)(ii) (the current law Treasury Amendment) and replaces it with a new subsection 2(c), which states that nothing in the CEA applies to transactions in foreign currency, government securities and other similar instruments unless these instruments are futures traded on an organized exchange. The bill defines ``organized exchange'' as a trading facility that either allows retail customers, permits agency trades, or has a self regulatory role. Subparagraph (2)(B) provides the CFTC with jurisdiction over retail foreign currency transactions that are not traded on an organized exchange and that are not regulated by another federal regulator.

SEC. 5. LEGAL CERTAINTY FOR OVER-THE-COUNTER TRANSACTIONS. Amends section 2 of the CEA to create a new subsection 2(d), which provides two exclusions from the CEA for over-the-counter derivatives. Section 2(d)(1) provides that nothing in the CEA applies to transactions in an exclusive-eligible commodity if the transaction: (1) is between eligible contract participants (large, institutional entities) and (2) is not executed on a trading facility. The second exclusion in paragraph (d)(2) provides that nothing in the CEA shall apply to a transaction in exclusion-eligible commodity if the transaction: (1) is entered into on a principal to principal basis between parties trading for their own accounts; (2) is between eligible contract participants (large, institutional entities) and (3) is executed on an electronic trading facility. Paragraph (d)(3) provides that derivatives on energy commodities (i.e., energy swaps) that have been excluded from the CEA would be subject to anti-manipulation provisions of the CEA.

SEC. 6. EXCLUDED ELECTRONIC TRADING FACILITIES. Amends section 2 of the CEA to create a new subsection 2(e) that provides that trading instruments that are otherwise excluded from the CEA on an electronic trading facility does not subject the transactions to the CEA. Paragraph (c)(2) states that nothing in the DEA shall prohibit a contract market or derivatives transaction execution facility from establishing and operating an excluded electronic trading facility.

SEC. 7. HYBRID INSTRUMENTS. Amends section 2 of the CEA to create a new subsection 2(f) that provides that nothing in the CEA applies to a hybrid instrument that is predominantly a security to mean any hybrid instrument in which (1) the issuer of the instrument receives payment in full of the purchase price at the time the instrument is delivered; (2) the purchaser is not required to make additional payments; (3) the issuer of the instrument is not subject to mark-to-market margining requirements; and (4) the instrument is not marketed as a futures contract. Paragraph (f)(3) clarifies that mark-to-market requirements do not include the obligation of an issuer of a secured debt instrument to increase the amount of collateral for the instrument.

SEC. 8. FUTURES ON SECURITIES. Amends section 2 of the CEA by adding a new subsection 2(g) that repeals the Shad Johnson jurisdictional accord. The new section 2(g)(1) is a savings clause to ensure that excluded OTC equity derivatives remain outside the CEA and the jurisdiction of the CFTC. This paragraph also prohibits the CFTC from designating a board of trade as a contract market in options on securities (as in current law).

Paragraph (2) allows the trading of futures on security indexes on contract markets. Gives the CETC exclusive jurisdiction in regulating these futures. In order for these products to be designated as a contract market, the contracts must be cash settled and must not be susceptible to manipulation (applies to both the price of the contract or the underlying securities (or an option on such securities)).

Paragraph (3) allows the trading of designated futures on securities (defined in the bill as a contract for future delivery on a single non-exempted security, an index based on fewer than 5 non-exempted securities or an index in which a single stock predominates by its value accounting for more than 30 percent of the index's total value). The Act authorizes these products to be traded on designated contract markets and national securities exchanges or associations.

Paragraph (4) provides criteria for contract market designation of these products including: cash settlement; real-time audit trails; insusceptibility to price manipulation (both of the contract and the underlying stock or an option on that stock); eligibility for listing on a national securities exchange; margin requirements; conflict of interest rules; and making information available to the regulators.

Paragraph (5) authorizes the SEC to enforce the securities laws related to insider trading and fraud with respect to designated futures on securities listed on a contract market. This paragraph also requires the SEC and the CFTC, beginning three years from the date of enactment, to jointly compile a report on the implementation of this new authority and, four years after the date of enactment, to submit the report to Congress.

Paragraph (6) authorizes the CFTC to enforce its large trader reporting and other antifraud and antimanipulation authorities for designated futures on securities listed on a national securities exchange. It requires national securities exchanges to provide the CFTC information to enforce these provisions.

Paragraph (7) provides the process for listing a designated future on security on either a futures exchange or national securities exchange.

As in current law, paragraph (8) provides the Federal Reserve with the authority to

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set margin and delegate this authority. The paragraph would allow the Federal Reserve to create a three member board consisting of members of the CFTC, SEC and the Federal Reserve to set and maintain margin levels on designated futures on securities.

SEC. 9. PROTECTION OF THE PUBLIC INTEREST. Replaces section 3 of the CEA with a new section listing the responsibilities of the CFTC in protecting the public interest. These include: ensuring the financial integrity of all transactions subject to the Act; protecting market participants from fraud and manipulation; preventing market manipulation and minimizing the risk of systemic failure; and promoting financial innovation and fair competition.

SEC. 10. PROHIBITED TRANSACTIONS. Re-writes the current section 4c for clarity and adds a new provision (sec. 4c(a)(3)(B)) to allow futures commission merchants to trade futures off the floor of a futures exchange as long as the board of trade allows such transactions and the FCMs report, record and clear the transactions in accordance with the rules of the contract market or derivatives trading execution facility.

SEC. 11. DESIGNATION OF BOARDS OF TRADE AS CONTRACT MARKETS. Strikes current law sections 5 and 5a and adds a new section 5 providing for the designation of boards of trade as contract markets. Subsection (b) contains criteria that boards of trade must meet in order to be designated as a contract market. These include establishing and enforcing rules preventing market manipulation; ensuring fair and equitable trading; specifying how the trade execution facility operates--including any electronic matching systems; ensuring the financial integrity of transactions; disciplining members or market participants who violate the rules; allowing for public access to the board of trade rules and enabling the board of trade to obtain information in order to enforce its rules. Existing contract markets are grand fathered in.

The 17 core principles that must be met to maintain designation as a contract market are contained in (d) and provide that the board of trade must: monitor and enforce compliance with the contract market rules; list only contracts that are not susceptible to manipulation; monitor trading to prevent manipulation, price distortion and delivery or settlement disruptions; adopt position limits for speculators; adopt rules to provide for the exercise of emergency authority, including the authority to liquidate or transfer open positions, suspend trading and make margin calls; make available the terms and conditions of the contracts and the mechanisms for executing transactions; publish daily information on prices, bids, offers, volume, open interest, and opening and closing ranges; provide a competitive, open and efficient market and mechanism for executing transactions; provide for the safe storage of all trade information in a readily usable manner to assist in fraud prevention; provide for the financial integrity of the contracts, the futures commission merchants and customer funds; protect market participants from abusive practices; provide for alternative dispute resolutions for market participants and intermediaries; establish and enforce rules regarding fitness standards for those involved in market governance; ensure that the governing board reflects the composition of the market participants (in the case of mutually owned exchanges); maintain records and make them available at any time for inspection by the Attorney General; and avoid taking any action that restrains trade or imposes anticompetitive burdens on the markets.

SEC. 12. DERIVATIVES TRANSACTION EXECUTION FACILITIES. Amends the CEA by adding a new section 5a authorizing a new trading designation, derivatives transaction execution facility (DTEF). Under (b), a board of trade may elect to operate as a DTEF rather than a contract market if they meet the DTEF designation requirements. A registered DTEF may trade any non-designated futures contract if the commodity underlying the contract has a nearly inexhaustible supply, is not susceptible to manipulation and does not have a cash market in commercial practice. Eligible DTEF traders include authorized contract market participants and persons trading through registered futures commission merchants with capital of at least $20,000,000 that are members of a futures self-regulatory organization (SRO) and a clearing organization. Boards of trade that have been designated as contract markets may operate as DTEFs if they provide a separate location for DTEF trading or, in the case of an electronic system, identify whether the trading is on a DTEF or contract market.

Subsection (c) provides requirements for boards of trade that wish to register as DTEFs, including: establishing and enforcing trading rules that will deter abuses and provide market participants impartial access to the markets and capture information that may be used in rule enforcement; define trading procedures to be used; and provide for the financial integrity of DTEF transactions.

To maintain registration as a DTEF, the board of trade must comply with 8 core principles listed in (d): maintain and enforce rules; ensure orderly trading and provide trading information to the CFTC; publicly disclose information regarding contract terms, trading practices, and financial integrity protections; provide information on prices, bids and offers to market participants as well as daily information in volume and open interest for the actively traded contracts; establish and enforce rules regarding fitness standards for those involved in DTEF governance; maintain records and make them available at any time for inspection by the Attorney General; and avoid taking any action that restrains trade or imposes anticompetitive burdens on the markets.

Subsection (e) allows a broker-dealer or a bank in good standing to act as an intermediary on behalf of its customers and to receive customer funds serving as margin or security for the customer's transactions. If the broker-dealer holds the DTEF customer funds or accounts for more than 1 business day, the broker-dealer must be a registered FCM and a member of a registered futures association. The CFTC and SEC are to coordinate in adopting rules to implement this subsection.

Under (f), the CFTC may adopt regulations to allow FCMs to give their customers the right to not segregate customer funds for purposes of trading on the DTEF.

Subsection (g) clarifies that a DTEF may trade derivatives that otherwise would be excluded from the CEA and the CFTC has exclusive jurisdiction only when these instruments are traded on a DTEF.

SEC. 13. DERIVATIVES CLEARING ORGANIZATIONS. Amends the CEA to create a new section 5b regarding derivatives clearing organizations. Under subsection (a), these clearing entities, which are allowed to clear derivatives (that are not a security), must register with the CFTC and meet a set of 14 core principals set out in subsection (d), including principals on financial resources of the clearing facility, participant eligibility, risk management systems, settlement procedures, treatment of client funds, default rules, rule enforcement, system safeguards, reporting, record keeping, public information disclosure, information sharing, and minimizing competitive restraints.

Under subsection (b), a derivatives clearing organization will not have to register with the CFTC if it is registered with another federal financial regulator and it does not clear futures. Under subsection (c), a derivatives clearing organization that is exempt from registration may opt to register with the CFTC. Subsection (e) provides that existing clearing entities that clear futures contracts on a designated contract market will be grand fathered in as a derivatives clearing organization.

Sec. 14. COMMON PROVISIONS APPLICABLE TO REGISTERED ENTITIES. Amends the CEA to create a new section 5c that contains provisions affecting all registered entities (contract markets, derivatives transaction execution facilities and derivatives clearing organizations).

Subsection (a) would allow the CFTC to issue or approve interpretations to describe what would constitute an acceptable business practice under the core principals for registered entities.

Subsection (b) would allow a registered entity to delegate its self regulatory functions to a registered futures association, while specifying that responsibility for carrying out these functions remain with the registered entity.

Subsection (c) would enable the registered entity to trade new products or adopt or amend rules by providing the CFTC a written certification that the new contract or new rule or amendment complies with the CEA. This subsection would allow a registered entity to request that the CFTC grant prior approval of a new contract, new rule or rule amendment. This subsection would require the CFTC to pre-approve rule changes to open agricultural contracts.

Subsection (d) grants the CFTC the authority to informally resolve potential violations of the core principals for registered entities.

Sec. 15. Exempt Boards of Trade. Amends the CEA to create a new section 5d regarding exempt boards of trade. Under subsections (a) and (b), futures contracts traded on an exempt board of trade would be exempt from the CEA (except section 2(g) regarding equity futures) if (1) participants are eligible contract participants (large institutional investors) and (2) the commodity underlying the futures contract has an inexhaustible deliverable supply, is not subject to manipulation, or has no cash market. Subsection (c) subjects futures contracts traded on an exempt board of trade to the anti-fraud and anti-manipulation provisions of the CEA. Under subsection (d), if the CFTC finds that an exempt board of trade is a significant source of price discovery for the underlying commodity, the board of trade shall disseminate publicly on a daily basis trading volume, opening and closing price ranges, open interest, and other trading data as appropriate to the market.

Sec. 16. Suspension or Revocation of Designation as Contract Market. Designates current section 5b as 5d and amends it to authorize the CFTC to suspend the registration of a registered entity for 180 days for any violation of the CEA.

Sec. 17. Authorization of Appropriations. Amends section 12(d) of the CEA by striking 2000 and reauthorizing appropriations through fiscal year 2005.

Sec. 18. Preemption. Rewrites paragraph 12(e)(2) of the CEA for clarity and to conform with changes made in the bill. Re-states the current provisions that the CEA supercedes and preempts other laws in the case of transactions conducted on a registered entity or subject to regulation by the CFTC (even if outside the United States), and adds that in the case of excluded electronic trading facilities, and any agreements, contracts or transactions that are excluded or covered by a 4(c) Sec. 18. Preemption. Rewrites paragraph 12(e)(2) of the CEA for clarity and to conform with changes made in the bill. Re-states the current provisions that the CEA supercedes and preempts other laws in the case of transactions conducted on a registered entity or subject to regulation by the CFTC (even if outside the United States), and adds that in the case of excluded electronic trading facilities, and any agreements, contracts or transactions that are excluded or covered by a 4(c)

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exemption, the CEA supercedes and preempts state gaming and bucket shop laws (except for the anti-fraud provisions of those laws that are generally applicable).

Sec. 19. Predispute Resolution Agreements for Institutional Customers. Amends section 14 of the CEA to clarify that futures commission merchants, as a condition of doing business, may require customers, that are eligible contract participants, to waive their right to file a reparations claim with the CFTC.

Sec. 20. Consideration of Costs and Benefits and Antitrust Laws. Amends section 15 of the CEA to add a new subsection (a) requiring the CFTC, before promulgating regulations and issuing orders, to consider the costs and benefits of their action. This does not apply to orders associated with an adjudicatory or investigative process, emergency actions or findings of fact regarding compliance with CFTC rules.

Sec. 21. Contract Enforcement Between Eligible Counterparties. Amends section 22 of the CEA to provide a safe harbor so that transactions will not be voidable based solely on the failure of the transaction to comply with the terms or conditions of an exclusion or exemption from the Act or CFTC regulations.

Sec. 22. Legal Certainty for Swaps. Provides that the SEC does not have jurisdiction over swap agreements. Places a one year moratorium on banks being able to market swaps to the retail public. Requests the President's Working Group to conduct a study on the regulatory treatment of swaps offered to retail customers.

Sec. 23. Technical and Conforming Amendments. Makes technical and conforming amendments throughout the CEA to reflect changes made by the bill.

Sec. 24. Effective Date. The Act takes effect on the date of enactment, except section 8 (dealing with futures on securities), which takes effect one year after enactment.

[beachmom]

42. Here is Lugar's remarks on the floor:

THE COMMODITY FUTURES MODERNIZATION ACT OF 2000

Mr. LUGAR. Mr. President, I am pleased to rise today with Senators GRAMM, HARKIN, FITZGERALD, HAGEL, and JOHNSON to re-introduce the Commodity Futures Modernization Act of 2000. This legislation is the Senate companion to H.R. 5660, which Congressman THOMAS EWING introduced yesterday in the House of Representatives and which will be enacted as part of the final appropriations package today. This monumental legislation is the culmination of two years worth of hearings and hard-fought negotiations, but I am confident that the resulting legislation will greatly benefit the U.S. financial industry. I commend all the Members and staff who have contributed to this bill. In particular, I want to applaud Senator GRAMM, Congressman EWING and Senator FITZGERALD for their stewardship and determination in helping pass a bill this year. Its enactment would not have occurred without their efforts. I also want to recognize Treasury Secretary Summers, Commodity Futures Trading Commission, CFTC, Chairman Bill Rainer and Securities and Exchange Commission, SEC, Chairman Arthur Levitt as well as their staffs, who have played a pivotal role in bringing this bill together and garnering support for its passage.

This bill, which re-authorizes the Commodity Exchange Act for five

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Derivative instruments, both those that are exchange-traded and traded over-the-counter, have played a significant role in our economy's current expansion due to their innovative nature and risk-transferring attributes. The global derivatives market has a notional value that now exceeds $90 trillion. Identified by Federal Reserve Chairman Alan Greenspan as the most significant event in finance of the past decade, the development of the derivatives market has substantially added to the productivity and wealth of our nation.

Derivatives enable companies to unbundle and transfer risk to those entities who are willing and able to accept it. By doing so, efficiency is enhanced as firms are able to concentrate on their core business objective. A farmer can purchase a futures contract, one type of derivative, in order to lock in a price for his crop at harvest. Likewise, automobile manufacturers whose profits earned overseas can fluctuate with changes in currency values, can minimize this uncertainty through derivatives, allowing them to focus on the business of building cars. Banks significantly lessen their exposure to interest rate movements by entering into derivatives contracts known as swaps, which enable these institutions to hedge their risk by exchanging variable and fixed rates of interests.

Signed into law in 1974, the Commodity Exchange Act, CEA, requires that futures contracts be traded on a regulated exchange. As a result, a futures contract that is traded off an exchange is illegal and unenforceable. When Congress enacted the CEA and authorized the CFTC to enforce it, this was not a concern. The meanings of ``futures'' and ``exchange'' were relatively apparent. Furthermore, the over-the-counter derivatives business was in its infancy. However, in

the 26 years since the statute's enactment, the OTC swaps and derivatives market, sparked by innovation and technology, has significantly outpaced the exchange-traded futures markets. Thus the definitions of a swap and a future began to blur.

In 1998, the CFTC issued a document containing a concept release regarding OTC derivatives, which was perceived by many as a precursor to regulating these instruments as futures. Just the threat of reaching this conclusion could have had considerable ramifications, given the size and importance of the OTC market. The legal uncertainty interjected by this dispute jeopardized the entirety of the OTC market and threatened to move significant portions of the business overseas. If we were to lose this market, most likely to London, it would take years to bring it back to U.S. soil. The resulting loss of business and jobs would be immeasurable.

This threat led the Treasury Department, the Federal Reserve, and the SEC to oppose the concept release and request that Congress enact a moratorium on the CFTC's ability to regulate these instruments until after the President's Working Group could complete a study on the issue. As a result, Congress passed a six-month moratorium on the CFTC's ability to regulate over-the-counter derivatives. Despite reservations, I supported this moratorium because it brought legal assurance to this skittish market and it allowed the Working Group time to develop recommendations on the most appropriate legal treatment of OTC derivatives. In November 1999, the President's Working Group completed its unanimous recommendations on OTC derivatives and presented Congress with these findings. These recommendations remain the cornerstone of our bill.

Our bill contains several mechanisms for ensuring that legal certainty is attained and that certain transactions remain outside the Commodity Exchange Act. The first, the electronic trading facility exclusion, would exclude transactions in financial commodities from the Act if conducted: (1) on a principal to principal basis; (2) between institutions or sophisticated persons with high net worth; and (3) on an electronic trading facility. The second would exclude these transactions if (1) they are conducted between institutions or sophisticated persons with high net worth; and (2) they are not on a trading facility.

These exclusions attempt to address the advent of electronic trading and the changing and innovating nature of the financial industry. Indeed, we are keenly aware that there are newly emerging electronic systems that provide for the electronic negotiation of swaps agreements between and among large banks and other sophisticated major financial institutions acting as dealers. We do not intend for these systems to come within the definition of trading facilities.

The third exclusion clarifies the Treasury Amendment language already contained in the CEA. It would exclude all transactions in foreign currency and government securities from the Act unless those transactions are futures contracts and traded on an organized exchange. As recommended by the Working Group, the bill would give the CFTC jurisdiction over non-regulated off-exchange retail transactions in foreign currency. Another important recommendation of the PWG was to authorize futures clearing facilities to clear OTC derivatives in an effort to lessen systemic risk and this bill incorporates this finding.

As part of the legal certainty provisions, this legislation also addresses the concern that excluding OTC derivatives from the futures laws will cause these products to be fully regulated as securities. With Senator GRAMM's leadership, this legislation adopts language that would provide the SEC with limited authority over institutional swaps for fraud, manipulation and

insider trading. This language will help to provide the legal certainty that these institutional transactions lack under current law.

Title four of this bill also provides legal certainty for banking products. Senator GRAMM has appropriately raised the concern that traditional banking products should not be subject to the CEA. This language provides an exclusion for traditional banking products as well as hybrid products that are predominantly banking in nature. New products offered by banks that are not in existence on December 5, 2000, or are otherwise not excluded from the CEA would fall under a ``jump ball'' provision of the bill. This section provides a mechanism for the CFTC and the Federal Reserve to determine whether a new non-traditional product offered by a bank should be regulated under the banking laws or the futures laws.

The second major section of this legislation addresses regulatory relief. In February of this year, the CFTC issued a regulatory relief proposal that would provide relief to futures exchanges and their customers. Instead of listing specific requirements for complying with the CEA, the proposal would require exchanges to meet internationally agreed-upon core principals. The CFTC proposal creates tiers of regulation for exchanges based on whether the underlying commodities being traded are susceptible to manipulation or whether the users of the exchange are limited to institutional customers. Unsure of whether this legislation would be enacted, the CFTC went ahead and finalized its regulatory relief proposal on November 20, 2000.

When enacted, this legislation will largely incorporate the CFTC's framework. A board of trade that is designated as a contract market would receive the highest level of regulation due to the fact that these products are susceptible to manipulation or are offered to retail customers. Futures on agricultural commodities would fall into this category. This bill also sets out that in lieu of contract market designation, a board of trade may register as a Derivatives Transaction Execution

years, would reform our financial and derivatives laws in five primary ways. First, it would incorporate the unanimous recommendations of the President's Working Group on Financial Markets on the proper legal and regulatory treatment of over-the-counter, OTC, derivatives. Second, it would codify the regulatory relief proposal of the CFTC to ensure that futures exchanges are appropriately regulated and remain competitive. Third, this legislation would repeal the Shad-Johnson jurisdictional accord, which banned single stock futures 18 years ago. Fourth, this legislation provides certainty that products offered by banking institutions will not be regulated as futures contracts. Finally, this bill provides legal certainty for institutional equity swaps by providing the SEC with express but limited authorities over these instruments.
Derivative instruments, both those that are exchange-traded and traded over-the-counter, have played a significant role in our economy's current expansion due to their innovative nature and risk-transferring attributes. The global derivatives market has a notional value that now exceeds $90 trillion. Identified by Federal Reserve Chairman Alan Greenspan as the most significant event in finance of the past decade, the development of the derivatives market has substantially added to the productivity and wealth of our nation.

Derivatives enable companies to unbundle and transfer risk to those entities who are willing and able to accept it. By doing so, efficiency is enhanced as firms are able to concentrate on their core business objective. A farmer can purchase a futures contract, one type of derivative, in order to lock in a price for his crop at harvest. Likewise, automobile manufacturers whose profits earned overseas can fluctuate with changes in currency values, can minimize this uncertainty through derivatives, allowing them to focus on the business of building cars. Banks significantly lessen their exposure to interest rate movements by entering into derivatives contracts known as swaps, which enable these institutions to hedge their risk by exchanging variable and fixed rates of interests.

Signed into law in 1974, the Commodity Exchange Act, CEA, requires that futures contracts be traded on a regulated exchange. As a result, a futures contract that is traded off an exchange is illegal and unenforceable. When Congress enacted the CEA and authorized the CFTC to enforce it, this was not a concern. The meanings of ``futures'' and ``exchange'' were relatively apparent. Furthermore, the over-the-counter derivatives business was in its infancy. However, in

the 26 years since the statute's enactment, the OTC swaps and derivatives market, sparked by innovation and technology, has significantly outpaced the exchange-traded futures markets. Thus the definitions of a swap and a future began to blur.

In 1998, the CFTC issued a document containing a concept release regarding OTC derivatives, which was perceived by many as a precursor to regulating these instruments as futures. Just the threat of reaching this conclusion could have had considerable ramifications, given the size and importance of the OTC market. The legal uncertainty interjected by this dispute jeopardized the entirety of the OTC market and threatened to move significant portions of the business overseas. If we were to lose this market, most likely to London, it would take years to bring it back to U.S. soil. The resulting loss of business and jobs would be immeasurable.

This threat led the Treasury Department, the Federal Reserve, and the SEC to oppose the concept release and request that Congress enact a moratorium on the CFTC's ability to regulate these instruments until after the President's Working Group could complete a study on the issue. As a result, Congress passed a six-month moratorium on the CFTC's ability to regulate over-the-counter derivatives. Despite reservations, I supported this moratorium because it brought legal assurance to this skittish market and it allowed the Working Group time to develop recommendations on the most appropriate legal treatment of OTC derivatives. In November 1999, the President's Working Group completed its unanimous recommendations on OTC derivatives and presented Congress with these findings. These recommendations remain the cornerstone of our bill.

Our bill contains several mechanisms for ensuring that legal certainty is attained and that certain transactions remain outside the Commodity Exchange Act. The first, the electronic trading facility exclusion, would exclude transactions in financial commodities from the Act if conducted: (1) on a principal to principal basis; (2) between institutions or sophisticated persons with high net worth; and (3) on an electronic trading facility. The second would exclude these transactions if (1) they are conducted between institutions or sophisticated persons with high net worth; and (2) they are not on a trading facility.

These exclusions attempt to address the advent of electronic trading and the changing and innovating nature of the financial industry. Indeed, we are keenly aware that there are newly emerging electronic systems that provide for the electronic negotiation of swaps agreements between and among large banks and other sophisticated major financial institutions acting as dealers. We do not intend for these systems to come within the definition of trading facilities.

The third exclusion clarifies the Treasury Amendment language already contained in the CEA. It would exclude all transactions in foreign currency and government securities from the Act unless those transactions are futures contracts and traded on an organized exchange. As recommended by the Working Group, the bill would give the CFTC jurisdiction over non-regulated off-exchange retail transactions in foreign currency. Another important recommendation of the PWG was to authorize futures clearing facilities to clear OTC derivatives in an effort to lessen systemic risk and this bill incorporates this finding.

As part of the legal certainty provisions, this legislation also addresses the concern that excluding OTC derivatives from the futures laws will cause these products to be fully regulated as securities. With Senator GRAMM's leadership, this legislation adopts language that would provide the SEC with limited authority over institutional swaps for fraud, manipulation and

insider trading. This language will help to provide the legal certainty that these institutional transactions lack under current law.

Title four of this bill also provides legal certainty for banking products. Senator GRAMM has appropriately raised the concern that traditional banking products should not be subject to the CEA. This language provides an exclusion for traditional banking products as well as hybrid products that are predominantly banking in nature. New products offered by banks that are not in existence on December 5, 2000, or are otherwise not excluded from the CEA would fall under a ``jump ball'' provision of the bill. This section provides a mechanism for the CFTC and the Federal Reserve to determine whether a new non-traditional product offered by a bank should be regulated under the banking laws or the futures laws.

The second major section of this legislation addresses regulatory relief. In February of this year, the CFTC issued a regulatory relief proposal that would provide relief to futures exchanges and their customers. Instead of listing specific requirements for complying with the CEA, the proposal would require exchanges to meet internationally agreed-upon core principals. The CFTC proposal creates tiers of regulation for exchanges based on whether the underlying commodities being traded are susceptible to manipulation or whether the users of the exchange are limited to institutional customers. Unsure of whether this legislation would be enacted, the CFTC went ahead and finalized its regulatory relief proposal on November 20, 2000.

When enacted, this legislation will largely incorporate the CFTC's framework. A board of trade that is designated as a contract market would receive the highest level of regulation due to the fact that these products are susceptible to manipulation or are offered to retail customers. Futures on agricultural commodities would fall into this category. This bill also sets out that in lieu of contract market designation, a board of trade may register as a Derivatives Transaction Execution if the products being offered are not susceptible to manipulation and are traded among institutional customers or retail customers who use large Futures Commission Merchants, FCMs, who are members of a clearing facility.

Also, a board of trade may choose to be an Exempt Board of Trade, XBOT, and not be subject to the Act (except for the CFTC's anti-manipulation authority) if the products being offered are traded among institutional customers only (absolutely no retail) and the instruments are not susceptible to manipulation. Our bill would allow a board of trade that is a DTEF or an XBOT to opt to trade derivatives that are otherwise excluded from the Act on these facilities and to the extent that these products are traded on these facilities, the CFTC would have exclusive jurisdiction over them. With this provision, the intent is to provide these facilities that trade derivatives with a choice--if regulation is beneficial, the facility may choose to be regulated. If not, the facility may choose to be excluded or exempted from the Act.

By refraining from altering certain sections of the Act, this legislation re-affirms the importance of specific authorities granted the CFTC, including its anti-fraud and anti-manipulation powers. Section 4b is the principal anti-fraud provision of the Act and the Commission has consistently used Section 4b to combat fraudulent conduct by bucket shops and boiler rooms that entered into transactions directly with their customers and thus did not involve a traditional broker-client type of relationship. There have been cases involving the fraudulent sale of illegal precious metals futures contracts marketed as cash-forward transactions as well as cases involving boiler room operations fraudulently selling illegal precious metals contracts to members of the general public.

This reaffirmation is consistent with both Congress' understanding of and past Congressional amendments to Section 4b that confirmed the applicability of Section 4b to fraudulent boiler rooms and bucket shops that enter into transactions directly with their customers.

It is the intent of Congress in retaining Section 4b of the Act that the provision not be limited to fiduciary, broker/customer or other agency-like relationships. Section 4b provides the Commission with broad authority to police fraudulent conduct within its jurisdiction, whether occurring in boiler rooms and bucket shops, or in the e-commerce markets that will develop under this new statutory framework.

The bill's last section addresses the Shad-Johnson jurisdictional accord. In 1982, SEC Chairman John Shad and CFTC Chairman Phil Johnson reached an agreement on dividing jurisdiction between the agencies for those products that had characteristics of both securities and futures. Known as the Shad-Johnson Accord, this agreement prohibited single stock futures and delineated jurisdiction between the SEC and the CFTC on stock index futures.

Meant as a temporary agreement, many have suggested that the Shad-Johnson accord should be repealed. The President's Working Group unanimously agreed that the Accord should be repealed if regulatory disparities are resolved between the regulation of futures and securities. In March 2000, the General Accounting Office released a report that found that there is no legitimate policy reason for maintaining the ban on single stock futures since these products are being traded in foreign markets, in the OTC market, and synthetically in the options markets. Chairman GRAMM and I sent a letter requesting the CFTC and the SEC to make recommendations on reforming the Shad-Johnson ban. On September 14, 2000, the SEC and CFTC reached an agreement on the proper regulatory treatment of these instruments, and we have incorporated this agreement into our legislation.

Under the legislation, the SEC and the CFTC would jointly regulate the market for single stock futures and narrow-based stock index futures. These products will be allowed to trade on both futures and securities exchanges. Single stock futures and narrow-based stock index futures (i.e., security futures) would be statutorily defined as both securities and futures, allowing the agencies the authority to regulate these instruments. However, to avoid redundancy, our legislation exempts these products from a series of regulations and requirements under both the securities and futures laws.

Margin levels, listing standards, and other key trading practices would be jointly supervised by the SEC and CFTC. At the outset, margin levels for security futures products could not be lower than comparable margin levels required in the options markets. The tax treatment of these products would be comparable to the tax treatment of options on securities to ensure a level playing field between the markets.

Futures on broad-based indices would be under the exclusive jurisdiction of the CFTC. The agreement sets out a ``bright-line'' formula for determining when an index is broad-based using the number and weighting of the securities contained in the index. This formula would allow a broad-based index to contain as few as 9 securities.

The goal of this legislation is to ensure that the United States remains a global leader in the derivatives marketplace and that these markets are appropriately and effectively regulated. I believe that this legislation meets these objectives while ensuring that the public's interest in the financial markets is protected.

This long legislative journey began two years ago when the Senate and House Agriculture Committees held a two day roundtable, in which distinguished individuals from the financial community participated. One of those individuals was Merton H. Miller, the Nobel Prize winning professor of economics from the University of Chicago, who passed away this summer. Professor Miller, known for his disarming sense of humor, his plain-spokenness and his generosity, is dearly missed by his family, friends and colleagues. The impact of his death has been particularly hard felt by the community of friends at the Chicago futures markets. Professor Miller was the primary intellectual force behind the development of the modern financial futures market and a staunch defender of the free market system. His body of work helped bring academic legitimacy to these markets, and he is sorely missed by them. As part of our roundtable discussion, we allowed each of the participants to make one wish for the coming 106th Congress. True to his life's work in this area, Professor Miller told us that Congress needed to lessen the cost of regulation on the futures and other financial markets in order to allow these markets to survive and compete in the global economy. I find it particularly satisfying that we are able to pass this historic legislation at the end of the 106th Congress and provide Professor Miller with his wish. I am confident that his legacy will live on through the success and growth of the markets that are benefitted by this legislation.

Wow, a pretty boring speech for a bill that has ended up wrecking the entire global economy.

[karynnj]

41. Gramm's speech introducing it

Mr. GRAMM. Mr. President, today I join with Senator LUGAR, chairman of the Senate Agriculture Committee, to introduce the Commodity Futures Modernization Act of 2000. The formal purpose of this legislation is to reauthorize the Commodity Exchange Act, the legal authority for the Commodity Futures Trading Commission. As important as that is, this legislation does far more.

This is a landmark bill, that addresses four chief goals that Senator LUGAR and I set out to achieve when we first began discussing this legislation. First of all, this bill would repeal the so-called Shad-Johnson Accord, the 18-year-old temporary prohibition on the trading of futures based on individual stocks. Second, the bill eliminates the legal uncertainly that today hangs as an ominous cloud over the $7 trillion financial swaps markets. Third, the bill addresses the need to harmonize the treatment of margins among the futures, stock, and options markets. Fourth, the bill provides important and necessary regulatory relief to the futures and securities markets.

One of the most notable aspects of this bill is that it brings together the chairmen of the two committees with jurisdiction over these issues, the Agriculture Committee and the Banking Committee. To start out with such cooperation speaks well, I believe, for the prospects for this legislation. While the Commodity Exchange Act is clearly within the jurisdiction of the Agriculture Committee, stocks, options, and swaps are within the jurisdiction of the Banking Committee.

The next step for this bill will be joint hearings of our two committees to consider it. Few bills are in a perfected form when first introduced, and I fully expect that additional changes will be made to this one before it becomes law. For example, I hope to see additional measures of regulatory relief for the securities markets included.

But this bill is a fine beginning, introduced in the best way. We bring together two committees that could choose to argue over turf but instead are choosing to cooperate to make changes in law that are needed to ensure that our financial market places continue to lead the world. At the same time, we will be providing the widest choice of investment opportunities for American businesses and families.

[karynnj]

39. Here is a Markey speech that shows he had concerns about the swaps

SPEECH OF
HON. EDWARD J. MARKEY

OF MASSACHUSETTS
IN THE HOUSE OF REPRESENTATIVES
Thursday, October 19, 2000

* Mr. MARKEY. Mr. Speaker, I rise in support of the motion to suspend the rules and pass the bill, H.R. 4541.

* I reluctantly intend to vote for this bill today, despite the fact that I have some very serious concerns about both the process that has brought this bill to the floor and some of its provisions.

* Let me speak first to the process. In the Commerce Committee, Democratic members worked cooperatively with the Republican majority to craft a bipartisan bill that addressed investor protection, market integrity, and competitive parity issues raised by the original Agriculture Committee version of the bill. As a result, we passed our bill with unanimous bipartisan support. Following that action, we stood ready to work with members of the Banking and Agriculture Committees to reconcile our three different versions of the bll and prepare it for House floor action. But after just a few bipartisan staff meetings, the Democratic staff was told that Democrats would henceforth be excluded from all future meetings, and that the Republican majority leader was going to take the lead in drafting the bill. What's more, we were also told the chairman of the Senate Banking Committee was invited into those negotiations--despite the fact that this bill comes within the Agriculture Committee's jurisdiction over in the Senate and the Senate has not even passed a CEA bill. In fact, the Senate Agriculture Committee decided not to include the swaps provisions sought by the chairman of the Senate Banking Committee when the committee reported S . 2697 , because these proposals were viewed as so controversial.

* We then went through a period of several weeks in which the Republican majority staff caucused behind closed doors. The product that resulted from those negotiations was so seriously flawed that it was opposed by Treasury, the SEC, the CFTC, the New York Stock Exchange, the NASDAQ, and all of the Nation's stock and options exchanges, the entire mutual fund industry, and even some of the commodities exchanges. Democrats, the administration, the CFTC, and the SEC suggested a number of changes to fix the many flaws in this language, and over the last several days many of them have been accepted. That is a good thing. But I would say to the majority, if you had simply continued to work with us and to allow our staffs to meet with your staffs, we could have resolved our differences over this bill weeks ago. We shouldn't have had to communicate our concerns through e-mails and third parties. We really should be allowing our staffs to meet and talk to each other.

* Having said that, let me turn to the substance of this bill. There are two principal areas I want to focus on--legal certainty and single stock futures.

* With regard to legal certainly, I frankly think this whole issue is overblown. Congress added provisions to the Futures Trading Practices Act of 1992 that give the CFTC the authority to exempt over-the-counter swaps and other derivatives from the Commodities Exchange Act--without having to even determine whether such products were futures. I served as a conferee when we worked out this language, and it was strongly supported by the financial services industry.

* Now we are told we need to fix the ``fix'' we made to the law back then. But, I would note that when former CFTC Chair Brooksley Born opened up the issue of whether these exclusions should be modified, she was quickly crushed. The other financial regulators immediately condemned her for even raising the issue and the Congress quickly attached a rider to an appropriations bill to block her from moving forward. The swaps industry was never in any real danger of having contracts invalidated on the basis of the courts declaring them to be illegal futures. They were only in danger of having the CFTC ``think'' about whether to narrow or change their exemptions. But the CFTC was barred from doing even that!

* What we are doing in this bill is saying--O.K.--we are going to take OTC swaps between ``eligible contract participants'' out of the CEA. They are excluded from the act.

* Now, I don't have any problem with that. If the swaps dealers feel more comfortable with a statutory exclusion for sophisticated counterparties instead of CFTC exemptive authority, and the Agriculture Committee is willing to agree to an exclusion that makes sense, that's fine with me. However, I am not willing to allow ``legal certainty'' to become a guise for sweeping exemptions from the antifraud or market manipulation provisions of the securities laws. That is simply not acceptable.

* While some earlier drafts of this bill would have done precisely that, the bill we are considering today does not. That is a good thing, and that is why I am willing to support the legal certainty language today. However, I do have some concerns about how we have defined ``eligible contract participant''--that is, the sophisticated institutions that will be allowed to play in the swaps market with little or no regulation.

* The bill before us today lowers the threshold for who will is an ``eligible contract participant'' far below what the Commerce Committee had allowed. I fear that this could create a potential regulatory gap for retail swap participants that ultimately must be addressed.

* The term ``eligible contract participant'' now includes some individuals and entities, who should be treated as retail investors--those who own and invest on a discretionary basis less than $50 million in investments. These are less sophisticated institutions and individuals, and they are more vulnerable to fraud or abusive sales practices in connection with these very complex financial instruments. If Banker's Trust can fool Procter and Gamble and Gibson Greetings about the value of their swaps what chance does a small municipal treasurer or a small business user of one of these products have?

* For example, under one part of this definition, an individual with total assets in excess of only $5 million who uses a swap to manage certain risks is an ``eligible contract participant'' for that swap. I think that threshold is simply too low.

* I don't believe that removal of these retail swap participants from the protections of the CEA makes sense, unless the bill makes clear that other regulatory protections will apply.

* To this end, the Commerce Committee version of H.R. 4541 would have required that certain individuals or entities who own and invest on a discretionary basis less than $50 million in investments, and who otherwise would meet the definition of ``eligible contract participant,'' would not be ``eligible contract participants'' unless the counterparty for their transaction was a regulated entity, such as a broker-dealer or a bank. That helps assure that they are not doing business with some totally fly-by-night entity, but with someone who is subject to some level of federal oversight and supervision. It is not a guarantee that the investor still won't be ripped off. But it helps make it less likely.

* The bill we are considering today weakens this requirement. The Commerce provision only applies to governmental entities as opposed to individual investors; the threshold for application of the provision to such entities is lowered to $25 million; and the list of permissible counterparties to the swap is expanded to include some unregulated entities.

* I believe the original Commerce Committee investor protection provision should be fully restored. Moreover, the bill should clarify explicitly that counterparties who may enter into transactions with retail ``eligible contract participants'' are subject for such transactions to the antifraud authority of their primary regulators.

GPO's PDF

* I also have some concerns with the breadth of the exemption in section 106 of this bill, and its potential anticompetitive and anticonsumer effects. There may be less anticompetitive ways to address an energy swaps exemption in a way that provides for fair competition and adequate consumer protections in this market. Such a result would be in the public interest. What is currently in the bill is not, and I would hope that it could be fixed as this bill moves forward.

* Let met now turn to the provisions of this bill that would allow the trading of stock futures. These new

* Now, I have serious reservations about the impact of single stock futures on our securities markets. In all likelihood, these products are going to be used principally by day traders and other speculators. Now, there is nothing inherently wrong with speculation. It can be an important source of liquidity in the financial markets. But one of the purposes of the federal securities laws has traditionally been to control excessive speculation and excessive and artificial volatility in the markets, and to limit the potential for markets to be manipulated or used to carry out insider trading or other fraudulent schemes.

* I am concerned about the prospect for single stock futures to contribute to speculation, volatility, market manipulation, insider trading, and other frauds. That is why it is so important for the Congress to make sure that if these products are permitted, that they are regulated as securities and are subject to the same types of antifraud and sales practice rules that are otherwise applied to other securities. I think that this bill, if the SEC and the CFTC properly administer it, can do that.

* First, with respect to excessive speculation, the current bill provides that the margin treatment of stock futures must be consistent with the margin treatment for comparable exchange-traded options. This ensures that (1) stock futures margin levels will not be set at dangerously low levels and (2) stock futures will not have unfair competitive advantage vis-a 2-vis stock options.

* The bill provides that the margin requirements for security future products shall be consistent with the margin requirements for comparable option contracts traded on a securities exchange registered under section 6(a) of the Exchange Act of 1934.

* A provision in the bill directs that initial and maintenance margin levels for a security future product shall not be lower than the lowest level of margin, exclusive of premium, required for any comparable option contract traded on any exchange registered pursuant to section 6(a) of the Exchange Act of 1934. In that provision, the term lowest is used to clarify that in the potential case where margin levels are different across the options exchanges, security future product margin levels can be based off the margin levels of the options exchange that has the lowest margin levels among all the options exchanges. It does not permit security future product margin levels to be based on option maintenance margin levels. If this provision were to be applied today, the required initial margin level for security future products would be 20 percent, which is the uniform initial margin level for short at-the-money equity options traded on U.S. options exchanges.

* Second, with respect to market volatility, the bill subjects single stock futures to the same rules that cover other securities, including circuit breakers and market emergency requirements.

* Third, with respect to fraud and manipulation, the bill subjects single stock futures to the same type of rules that are in place for all other securities. These include the prohibitions against manipulation, controlling person liability for aiding and abetting, and liability for insider trading.

* Fourth, among the bill's most important provisions are those requiring the National Futures Association to adopt sales practice and advertising rules comparable to those of the National Association of Securities Dealers. Under the bill, the NEA will submit rule changes related to sale practices to the SEC for the Commission's review. Because investors can use single stock futures as a substitute for the underlying stock, they will expect and should receive the same types of protections they receive for their stock purchases. It is significant that in its new role, the NFA will be subject to SEC oversight as a limited purpose national securities association. The SEC is very familiar with the sales practice rules necessary to protect investors. I expect the NFA to work closely with the SEC to ensure such protections apply to all investors in security futures products regardless of the type of intermediary--broker-dealer or futures commission merchant--that offers the product.

* Fifth, the bill applies important consumer and investor protections found in the Investment Company Act of 1940 to pools of single stock futures. This ensures that investors in pools of single stock futures will enjoy the same protections as other investors in other funds that invest in securities.

* In addition to these provisions, the bill also addresses a number of other important matters. It allows for coordinated clearance and settlement of single stock futures. It assures that securities futures are subject to the same transaction fees applicable to other securities. It requires decimal trading. And it provides Treasury with the authority to write rules to assure tax parity, so that single stock futures do not have tax advantages over stock options.

* In addition to these provisions, the bill represents a substantial change from the status quo in which the SEC and the CFTC have shared responsibility for ensuring that all futures contracts on securities indexes meet requirements designed to ensure, among other things, that they are not readily susceptible to manipulation.

* This bill gives the CFTC the sole responsibility for ensuring that index futures contracts within their exclusive jurisdiction meet the standards set forth in this bill. Most important among these requirements is that a future on a security index not be readily susceptible to manipulation. Because the futures contract potentially could be used to manipulate the market for the securities underlying an index, it is critical that the CFTC be vigilant in this responsibility. Relying solely on the market trading the product to assess whether it meets the statutory requirements is not enough.

* In particular, the CFTC should consider the depth and liquidity of the secondary market, as well as the market capitalization, of those securities underlying an index futures contract. Perhaps even more importantly, the CFTC should require that a market that wants to offer futures on securities indexes to U.S. investors--whether it is a U.S. or foreign market--have a surveillance sharing agreement with the market or markets that trade securities underlying the futures contract. The CFTC should require that these surveillance agreements authorize the exchange of information between the markets about trades, the clearing of those trades, and the identification of specific customers. This information should also be available to the regulators of those markets.

* Finally, if a foreign market or regulator is unable or unwilling to share information with U.S. law enforcement agencies when needed, they should not be granted the privilege of selling their futures contracts to our citizens.

* There is one other important matter that I had hoped would be satisfactorily resolved today, but unfortunately, it has not. Last night, the Republican staff deleted language that appeared in earlier drafts that would have amended section 15(i)(6)(A) of the Securities Exchange Act of 1934 to clarify that single-stock futures, futures based on narrow stock indices, and options on such futures contracts (``security futures products'') are not ``new hybrid products''. I believe that this deleted language should have been reinserted into the legislation.

* Let me explain why. Currently, a new hybrid product is defined as a product that was not regulated as a security prior to November 12, 1999, and that is not an identified banking product under section 206 of the Gramm-Leach-Bliley act. Unless an amendment to the definition is made, security futures products potentially would fall within this definition.

* Section 15(i) of the 1934 act provides that the Securities and Exchange Commission must consult with the Federal Reserve Board before commencing a rulemaking concerning the imposition of broker-dealer registration requirements with respect to new hybrid products. Section 15(i) also empowers the Federal Reserve Board to challenge such a rulemaking in court.

* This provision was never intended to apply to situations where the Congress has decided by law to expand the definition of securities. What we are doing today in this bill is establishing a comprehensive regulatory system for the regulation of security futures products. Under this system, it is clear that intermediaries that trade securities futures products must register with the

* H.R. 4541 rests on a system of joint regulation. That means that both the SEC and the CFTC are assigned specific tasks designed to maintain fair and orderly markets for these security futures products.

* Amending the language on page 170 to exclude securities regulation of security futures only because they are sold by banks would create an anomalous result. A bank selling securities futures could register with the CFTC as a futures commission merchant but, unlike other entities, it might not have to notice register with the SEC. Effectively, half of the regulatory framework that the SEC and CFTC negotiated over with the Congress for many months would disappear. There is no public interest to be served in eliminating SEC oversight over issues such as insider trading frauds, market manipulation, and customer

GPO's PDF

sales practice rules just because a bank traded the security.

* The role of the Federal Reserve Board with respect to new hybrid products would be at odds with the regulatory structure for security futures products under H.R. 4541. There is no reason to undermine the structure of H.R. 4541 by giving the Federal Reserve Board a role in the regulation of broker-dealers that trade securities futures products.

* If this provision remains in the bill, I believe that in order to comply with the intent of Congress, as expressed in title II of this bill, the SEC would have to proceed by rule to require all bank Futures Commission Merchants seeking to sell single stock futures to, at minimum, notice register with the SEC. In addition, the CFTC would have to bar bank futures commission merchants from selling the product unless they have notice registered with the SEC. This is a convoluted way of dealing with a drafting problem that we could and should fix right now, but it is the only way to prevent gaping loopholes from opening up that could harm investors.

* Because there has been an effort over the last several days to address some of the concerns that Democrats have had about tax parity, swaps language in section 107 of the bill, mutual fund language, and numerous other important provisions, I am reluctantly going to vote for this bill today. It is not the bill I would have crafted. It still contains some serious flaws. But it is a much better bill than the bill that passed out of the Agriculture Committee.

* However, I must also say that if, when this bill goes over to the other body, some of the outrageous and anticonsumer provisions that were deleted from the House bill in recent days are to be restored, or other equally objectionable new provisions are added, I will fight hard to defeat this bill. And so, I would suggest to the financial services industry and to the administration, if you really want to get this bill done this year, you need to forcefully resist anticonsumer or anticompetitive changes to the legal certainty language, the tax parity language, the single stock futures language, and instead strengthen the consumer and market integrity and competitive provisions of the bill in the manner I have just described.

* I look forward to working with Members on the other side of the aisle and in the other body to achieve that goal. And I hope that we can have more of a direct dialog on this bill as it moves forward than we have had over the last few weeks.

[beachmom]

43. Karynnj, this is excellent research! Thank you! So ... Kerry voted no.

But why? Do we know why he voted against the bill? Was it the commodities portion or something else in the bill? It looks like all of the liberal Democrats in the Senate voted no. Because if we have a statement of some kind from Kerry saying this is a very bad move, well, DAMN, that is really good.

This Commodities Act is definitely a Republican Deregulation Bill, and a complete disaster. Also, it appears that it started out bipartisan and then the R's went off on their own. But in the end, it looks like it was a near unanimous vote in the House. Which is weird, compared to the Senate. I am disappointed in Markey's vote, when I think he knew it was not good. Perhaps there were other things in the bill that made him inclined to vote aye.

[karynnj]

45. I was trying to find a speech before the bill, but none of the searches I've found

have hit anything on that vote. The difference between the House and Senate is that that vote is specifically for just the deregulation bill, while the Senate's is for the budget. I found the Markey speech almost by accident clicking on all the links. I kind of suspect that they were intimidated by people like Gramm (who seems to be the person he is complaining about, who had a Phd in economics and Greenspan - but I only get that NYT article.

What I would love to find is something like his statement on the budget bill that they voted on a few weeks after he lost in 2004. They had only about 9 hours to read a huge piece of legislation - where he compared it to painting a room in the dark, saying you don't know exactly how it looked, but that it would be a mess - and this bill was a mess. (I wish I would have saved the full text of that because it is on none of the Kerry websites.

That was also the problem with this - there are too many things thrown together and they had no chance to even vote on the components This was also the same as the bill that repealed Glass-Seagill.

I don't think his press statements on his website go back that far.

[beachmom]

44. Question on that vote date. It actually didn't go through until December 2000, right?

So it must have been voted on again?

http://prairieweather.typepad.com/big_blue_stem/2008/06/dirty-mr-clean.html

MG: There is no regulation. In fact, when I was in the government, we argued very strenuously that these kinds of hidden bets could be very disruptive to the financial system and they played as important a role as securities and bonds did – which are regulated. We wanted them to be regulated. That was a battle that we lost out on. In December, 2000, on the floor of the Senate, Phil Gramm, chairman of the Senate Finance Committee, introduced a piece of legislation that completely deregulated these markets not only at the federal level but, for the most part, at the state level. So they are completely outside the law, so to speak.

TG: What was this legislation?

MG: It was called the “Commodity Futures Modernization Act.” It was a 262-page bill added as a rider to an 11,000-page omnibus appropriations bill as Congress was recessing for Christmas in 2000. I would say there was no one except the drafters of the bill who understood what it did. I can assure you that the drafters of the bill were not members of Congress! They were the lawyers for the investment bankers on Wall Street. They convinced Senator Gramm to introduce this. They freed the system from any regulation. And we’ve been embarking on financial fiascos ever since.

TG: I should mention that Phil Gramm is now the chief economic adviser to John McCain in McCain’s presidential campaign!

MG: He is the chief economic adviser to John McCain. John McCain famously said quite recently he doesn’t really know as much as he should about economics, but he’s reading Alan Greenspan’s biography! Phil Gramm is at his side. Phil Gramm is also an officer of UBS, the Swiss bank, that just – within these last few days – reported losses in the neighborhood of $12 billion because of these bets.

The charge that seems to be leveled here and at a link at the Nation was that almost nobody in Congress read this portion of the bill or understood what this Commodities Act did. Basically, Gramm snuck it in.

Edit: Here is Greenspan's opinion on the Act (he was for it), which is from June 2000:

http://www.federalreserve.gov/boarddocs/testimony/2000/20000621.htm

Testimony of Chairman Alan Greenspan
S. 2697, the Commodity Futures Modernization Act of 2000
Before the Committee on Agriculture, Nutrition, and Forestry and the Committee on Banking, Housing, and Urban Affairs, U.S. Senate
June 21, 2000

[karynnj]

46. Actually the House did not vote on 4577 until December

Here is the December 15, 2000 bill that passed easily. http://clerk.house.gov/evs/2000/roll603.xml

It then went to the Senate where:
12/15/2000:
Senate agreed to conference report by Unanimous Consent. (consideration: CR S11855-11885)

(which means that the leadership accepted that it had passed both Houses - so Kerry's only vote on this was "NO" for whatever reason.

[karynnj]

48. Slightly off topic, but relevant - NYT article on the mood of the Senate written 3 weeks before

This shows the Republicans were firmly in charge, and were controlling everything - http://query.nytimes.com/gst/fullpage.html?res=9A0CEEDB1E3FF932A25755C0A9669C8B63&scp=10&sq=Appropriations+bill&st=nyt

Also, off topic, but describes who was where in 2000 - article on Bush donors that shows they were excited by Bush's hands off attitude -
"The Enron Corporation, the Republican National Committee's second-largest donor, strongly favors the party's economic policies, particularly its preference for free trade and a hands-off approach to the regulation of business, including enterprises as different as derivatives trading and Internet commerce. " (From other sources, Gramm pushed Enron's issues)

http://query.nytimes.com/gst/fullpage.html?res=9C01E6DF123DF933A05754C0A9669C8B63&sec=&spon=&pagewanted=2

These were found through 3 searches of the NYT for June 1, 2000 to August 1, 2000 - using "appropriations" and "derivatives" "Commodity Futures Modernization Act" independently to get any contemporary coverage - there was none. (they did have an article on a Democratic amendment for a prescription drug plan that failed.

[karynnj]

47. Another excellent article - that shows the private sector wrote 83% of the subprime loans

http://www.mcclatchydc.com/251/story/53802.html

This means that, while there were other good reasons for more regulation, neither the bipartisan or the Republican bills to regulate the FMs would have had much effect on the current problem.

Ending the bad loans - as the Durbin amendment (and the 2004 plank) wanted would have.

[karynnj]

49. Global thoughts after reading

Here is an attempt to look at the mortgage to security process systematically - thus identifying where government could intervene or regulate. Then looking at which party wanted to and which didn't.

In the run up to the financial mess, there were 3 places where regulation could have been applied.

1) The loans themselves - The 2004 platform and the Durbin amendment both called for regulating the loan process itself. I don't see any Republican effort to regulate here and I suspect that that is because of their inherent dislike of regulating businesses. If the companies writing loans retained them as they did years ago, this would not be that bad as the businesses would avoid undue risk. Having companies that would buy the loans took that risk away.

2) Freddie Mac and Fannie Mae AND THE PRIVATE COMPANIES also consolidating the loans. Here, there was never a bill that made it's way out of the Republican controlled Senate Banking committee. There was a bipartisan bill that passed with 331 votes including most of the Republicans, but the Senate Republicans and Bush didn't want it. The Senate Republicans passed their own bill in committee but never took it to the floor of the Senate. That bill was calling for stronger regulation on the quasi Public FMs and legislating that they sell off some of their assets (presumably) to their private competitors, who were unregulated. This does reflect the Republican preference for smaller government and private enterprise, rather than recognition of the need for regulation. Also Santorum wanting to cut affordable housing programs when we had a surplus was just wrong.

Both of those bills would have regulated just the FMs. The quality of the regulation would in both cases depend on who was appointed. But at BEST, it would have decreased profits of the FMs and kept them smaller for the last several years and they would be healthy now. The private companies, which had lower standards would be in worse shape and they would be bigger. Their bad loans would have fed the next step. So, none of the regulation here would have stopped the problem.

The Senate Republican bill has had considerable coverage because McCain has used it as his claim to having called for more regulation. Even ignoring that McCain only added his name 10 months after it died, it is not clear it would not have helped and could have hurt. All it would have done was to shrink the FMs, while increasing the private sector which was worse. Here again, the fact that the consolidators had somewhere to sell these mortgages - even very bad ones - meant it was in their self interest to keep buying them.

3) the conversion of blocks of mortgages to securities The biggest problem was the SEC which allowed the derivatives and swaps to grow, These instruments are the real problem. The decision to do this was Chris Cox's and he was nominated by Bush because he was known to believe in light regulation. The person who most successfully persuaded the government that they were safe was Alan Greenspan. The legislator most responsible was Phil Gramm, a McCain economic adviser.

Here the 60 minutes video and some of the articles explain why no one stopped this - it was so complicated very few understood it. This I understand personally. 60 Minutes mentioned that derivatives were created by people with degrees in math and physics. In the early 1990s, a co-worker, briefly my boss, became one of these people. He was beyond brilliant with a PHD in physics, soft spoken, with a quiet sense of humor and an exceeding nice person. I remember him explaining in a lunch table discussion the basic concepts and how it was similar to the choice modeling that was being done by many people (not me) in my group. We all nodded intelligently, but walking back with my 3 closest friends - we all admitted that none of us understood it at all. (This in a group where I had no problem being one of the less intelligent people, just being accepted was something I was enormously proud of.) Had this been something any of were suppose to work on, we would have pushed to understand more, but because we didn't have to understand it and it was so complicated that we all took the easy way out.

Goggling his name and the word "derivatives", I found that at one point he headed the risk management, derivatives research department at a major bank. I suspect from the 60 minutes comments, that people in finance companies and banks and in the government also nodded their heads intelligently - just like us - even when they didn't understand.

[karynnj]

50. Not that important, but Freddie hired a McCain campaign person to

fight S190 by getting Republicans not to back it.
http://ap.google.com/article/ALeqM5j-G-fDVnv0WN1pXdMWjXX43CjyeAD93TM5QO0

(what is better in the article is a long list of Bush efforts to make loans easier to get. )

[beachmom]

51. Actually, this is extremely important as it explains to me the "missing link"

as to why this bill died. The bill was voted out of committee, and yet was never voted upon. Well, it ends up because the lobbyists "got to" enough Republicans to kill it. What a stunning account.

I am not impressed with either party, frankly. I am going to say it: "Group Think". BOTH parties suffered from it.

[karynnj]

52. You're right

It also states that the reason the Democrats disliked it was the cap on Freddie and Fannie. When you combine this with the McClatchy article that showed the the private sector was less regulated and responsible for 83% of the failed mortgages, it is seems that Hagel's bill was not better than the bipartisan one. Both the Bi-partisan House bill or the Hagel bill regulated just the FMs. The Hagel bill regulated the FMs more and made them smaller. That would have made the private, less regulated sector larger. The difference refects not the relative desire to regulate, but the conservative value of preferring private sector over public sector. If the issue was just wanting more regulation of the FMs, they could have supported the Republican written bipartisan House bill, which the Senate Banking committee people were ok with.

Neither bill would have prevented the mortgage companies from writing loans they would never have written if they had to hold on to them themselves. The best either bill could have done with the best most capable regulator was to keep the FMs out of the problem - but as it was they only bought 17% of the bad bills. I don't think there was jurisdiction to regulate the private sector here.

A better bill would have regulated the types of loans that could be written, which is what the 2004 platform called for and which the amendment Durbin put up several times would have done. Their concern was the impact on home owners, not the mortgage companies, consolidators or the financial houses, but those changes could have minimized the problem. They would not have ended it because it seems that a major decline in housing prices combined with a downturn in the economy would likely cause the simultaneous failure of mortgages worth less than the value of the houses securing them. These mortgages could have been very reasonable when written. Unless I am missing something, the entire scheme needed the housing market to decline no more than some threshold above which the non-defaulting mortgages could cover the sum of small differences in the loan value and the price they could sell the house for those that did fail.

An alternative would have been some regulation on the SEC side that would have regulated the complex derivatives or swaps - to eliminate a final market for the worst loans. (The private sector consolidators would not buy something (especially something so bad) they could not sell. The problem here is that no one really understood the complex securities. This was a failure on the part of the financial houses and the government. I think most of the Senators and Congressmen depended on the best advice they had from staff and advisers. The idea that the financial houses, with many of the top experts in Finance, were selling instruments that had the potential to fail in this spectacular fashion was likely not considered plausible. They likely assumed that the financial houses had modeled "worse case" scenarios correctly. This is likely the financial equivalent of the Emperor having no clothes. I assume that there are people in the SEC trying to come up with requirements for tests on new financial instruments where various scenarios can be simulated to assess how they perform under those conditions.

[beachmom]

53. You are right that the FMs were actually getting competition, so

that if they had been shrunk, this would not have stopped the bad loans from being made. That is what most people don't seem to understand: FMs did not write loans, they bought loans. Nobody made banks make bad loans, other than their desire not to "miss out" on the easy money.

I do think the de-toothing of the SEC the Bush Administration did was a big deal, and probably tilts the blame game more to the GOP side. Still, Democrats did go along with those godawful deregulation bills Phil Gramm wrote. I think Obama is better off talking about the Era of Deregulation is over, and blaming Bush for allowing it to get out of control during his tenure. That is the truth.

[karynnj]

54. Oddly - the AP has made this article unavailable

(I was looking here to write a post on GD-P.

[TayTay]

55. About Rick Davis

and his ties to Freddie Mac loybbing?

http://digg.com/2008_us_elections/McCain_campaign_manager_lied_about_his_Freddie_Mac_lobbying

[karynnj]

56. Yes - thanks

I was on Jillian's thread where she was trying to debunk teh Republican lie that Clinton's CRA caused the housing crisis. I put in the link to the great johnkerry.com post doing just that and then tried to debunk the two other RW lies - that Freddie and Fannie did it and that the Republicans would have stopped bad lending practices but the Democrats stopped them. ( http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=132&topic_id=8191294&mesg_id=8191508 )

The interesting part - as Beachmom pointed out was that it explained some of what happened with the Republican Senate bill - enough Republicans were won over by the lobbyists that it died - and Bush clearly did not want the bipartisan House bill.

[karynnj]

57. Nice clear list of changes that were responsible in a post today

Nobel Laureate Joseph Stiglitz adds other culprits as crucial to the making of the current economic crisis. Among them:

1) the April 1998, decision of President Clinton's Working Group on Financial Markets to quash a proposal by Brooksley E. Born, head of the Commodity Futures Trading Commission, to regulate derivatives;
2) enactment of Gramm-Leach-Bliley Act on November 12, 1999 allowing consolidation of commercial and investment banks;
3) passage of the Commodity Futures Modernization Act of 2000 removing derivatives from federal oversight;
4) the Bush tax cuts of 2001 and 2003;
5) the failure of the Federal Reserve to take responsibility for regulating derivatives; and
6) the Securities and Exchange Commission decision in April, 2004, to allow large investment banks to increase their debt-to-capital ratio from 12 to 1 to 30 to 1, or higher

(we had all of these - other than the tax cuts adn the first one - but this lets us cite Stiglitz)

http://www.huffingtonpost.com/2009/02/19/alan-greenspan-the-oracle_n_168168.html

[karynnj]

58. A link to some really good, simple animations explaining how

the mortgage crisis led to the financial crisis. Very clear and easy to understand.

http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=389&topic_id=5131681&mesg_id=5131755