David, sorry you've had to wait so long. I started to write this a few days ago, ran out of time, and hoped someone else would pick up the slack...some have, but evidently not to your satisfaction. In some part this is because everyone is focused on the 1999 legislation authored by Phil Graham rather than the 2000 legislation called the "Commodity Futures Modernization Act." There was a pretty comprehensive piece in Mother Jones about how this affected the regulation of credit-default swaps, etc. The Columbia Journalism Review did a piece on the coverage of this and how it has been mainly limited to the alternative press.
http://www.cjr.org/the_audit/post_140.php?page=all The wikipedia page on the act has some more information on the way it affected Lehman, AIG, and Enron http://en.wikipedia.org/wiki/Commodity_Futures_Modernization_Act_of_2000 It also points out that although it was technically never debated or voted on http://www.govtrack.us/congress/bill.xpd?bill=h106-5660 it was included in an Omnibus bill that passed at the end of the year, http://www.govtrack.us/congress/bill.xpd?bill=h106-4577 between the two bills, there was either a removal of existing regulations or (as in the case of credit default swaps) an explicit restriction against regulating them. More here on more recent attempts at re-regulation (too focused on election issues, but informative nonetheless): http://www.baltimorechronicle.com/2008/051908Leopold.shtml Finally, here's an article written just after the bill mentioned earlier on the list was passed. http://www.alternet.org/story/658/one_bank_under_god/?page=entire It contains this passage, which I think illustrates some of the problems mentioned earlier on the list (and which also conveniently mentions the CRA, though in ways you would probably not recognize): <OPEN QUOTE> The example of CitiGroup is illustrative. When the Travelers announced it was acquiring CitiBank in the spring of 1998 in a $70 billion stock swap, it was widely interpreted as a death knell for Glass-Steagall. The law forbade the merger, yet analysts assumed -- correctly -- that the companies had received permission from the Federal Reserve and would bull-through legislation to allow it. Worried consumer groups claimed that many larger banks, including CitiBank, have poor records of compliance with Community Reinvestment Act provisions, while they increasingly market "subprime" loans to less wealthy, unsophisticated customers and charge high interest rates and bundled, expensive loan insurance. Martin Lee, a New York lawyer and CRA watchdog, complained futilely to the Fed about these issues before taking his case to the state insurance departments. On June 4, 1998, he arrived at the offices of the Delaware Department of Insurance, in Dover. He met Rashmi Rangan, director of the Delaware Community Reinvestment Action Council, and Mary Harris, a Delaware resident who said she had been ripped off by a Travelers' subsidiary called Commercial Credit. Harris testified that she had responded to an advertisement from Commercial Credit and went to consolidate her family's car payments, mortgage and some consumer loans. According to a complaint filed with the Office of Thrift Supervision, Harris went to Commercial Credit for a $7,000 loan, and ended up with total payments, including points, interest and insurance, of more than $72,000. Her testimony was ignored by the insurance commissioner. Under state law, the only question at the hearing was whether Travelers Group could acquire Citicorp Assurance Co., an internal reinsurance agency that covers risks for the bank. By narrowing the question under study, the state regulator sidestepped the larger questions raised by the merger and comments like Harris'. Those were the Fed's responsibility, Hearing Officer Tony Meisenheimer told Lee and Rangan. Rangan and Lee are part of a small community of consumer activists who monitor the lending patterns of banks under the 1977 Community Reinvestment Act. The law, which has been weakened several times since its passage but remains in force even now, requires banks to lend money in the geographical area where they have branches, and to lend to historically underserved communities. The law also requires the banks to report this lending to regulators. It is an upshot of the studies of bank "redlining" that were done in the 1960s and '70s, when it was discovered that banks would refuse to lend money to African-Americans and to anyone with a home or business in a predominantly minority area. Some loan officers had maps with red lines drawn around the forbidden zones. The new law almost did not come to a vote because its main architect, Texas senator Gramm, hates the CRA. Gramm wanted the CRA completely repealed. Some Democrats, responding to pressure from folks like Lee, refused. When the House bill was being drafted, Rep. Luis Gutierrez (D-IL) and Rep. Tom Barrett (D-WI) tried to introduce amendments that would have applied CRA to all the lending and basic banking activities of a financial holding company. This means that mortgage companies, insurance company affiliates, and security company affiliates that make loans and offer other checking/savings accounts would have been covered by CRA. Those amendments were killed, and CRA requirements were reduced for smaller institutions. Meanwhile, a provision of the law added by Gramm was designed to punish watchdogs like Lee's group by requiring them to divulge any agreements such as loans that they have with banks. It's no problem to do so, says Lee, but when other community groups call for help when a bank is closing branches in poor neighborhoods, he has to tell them that if they file a complaint with the Fed, they have to open their books to an extraordinary degree. Many of the groups, who don't have full-time lawyers or accountants, aren't staffed to do such reporting, Lee says: "It couldn't be more clear that the intent and the effect of that is to discourage CRA commenting." CRA has been the only effective lever consumer and community groups had over large financial institutions. By attacking their community lending records during merger hearings, groups like Lee's and Rangan's could delay regulatory approval, costing the banks money. To avoid delays the banks would often offer the community groups loans and grants, or offer to partner them in a loan fund to serve the poor. "Now the Fed is going to be regulating community groups," Lee notes, "the very community groups who are trying to say, look at the banks' lending records" which the Fed has traditionally ignored. <END QUOTE> Now here is the note I began when you first asked the question. On Mon, Oct 20, 2008 at 11:45 AM, David B. Shemano <[EMAIL PROTECTED]> wrote: > Sean Andrews cites Jacob Weisberg below: > > If Leftists could somehow survive the Russian and Chinese experiments, I > think libertarians > will somehow survive the real estate bubble crash of > 2008. Just for the record, most didn't survive intellectually unscathed. There was a lot of reflection and revision of the theories, methods, premises, etc. given changed conditions. So far it doesn't seem like libertarians have any plans to make the same sort of negotiation with their first premises. > > Query -- what specific regulatory proposal of the anti-libertarians did > libertarians oppose that would have prevented the bubble and resulting > financial crisis? Well, most recently, there was the expansion of the Finance sector in the petrodollar/eurodollar recycling schemes of the 70s, squashing attempts to have the IMF deal with those funds, handing it over to Citibank, et. al. to manage global finance; then the whole "there are no Governments only individuals," union busting, Volker-TINA racket dispelled any illusions about who was in charge; the Clinton years, well documented by Pollin, didn't fare well either--as Doug pointed out a few weeks ago, their overall answer to the problem of rebalancing the system was to increase market power and financial strategies rather than increasing wages. And, as many point out, it was he who signed the bills passed to prevent credit default swaps and other forms of financial regulaiton (commodity futures modernization act, etc.); Bush carried on this tradition and resisted attempts to reign in predatory lending (letter from Spitzer last Feb pointed out that he wouldn't even let the states regulate them); and, in general, had a preference for libertarian thinking in terms of capital (rather than anyone else) has reigned for the better part of the last fifteen to twenty years. In short the trajectory can be summed up by saying that there was a preference for unregulated finance, privatization and the commodification of everything existing; a sense that this is somehow a viable strategy of economic development, that it won't produce wild, even catastrophic swings and crises. You're right that there was no political will to do anything other than pander to wall street by either party: that is what the Libertarian economists, who see the freedom of capital as the predominant one, preferred. It is a good point to make to say that this can't be seen as a narrowly legislative issue--though it is possible that legislation was proposed and never enacted by some handful of marginal pols. When people talk about de-regulation they are likely misnaming the problem: it was simply a preference for finance being unregulated (except, of course, in so far as the regulation helped capital owners pull their funds out at a moments notice and protected them from any possible "nationalization.") This is a different argument than the one you seem to be contesting. Even in the article passed along, this seems to be the drift. Not so much about failed or not enacted regulation as a general sense that regulation was impossible, unnecessary, stifling, proto-fascist, etc. >if there had been regulation that would have required AIG, Lehman and other >large derivative > sellers to hold reserves akin to what insurance companies are required to > hold, that would > have limited derivative availability, which would have arguably limited > investment in the > mortgage-backed securities. Is that the argument? Beyond being very > attenuated, can > anybody point me to any defeated legislation that was proposed on these > grounds? I still think you're looking to narrowly here. I imagine in a few months we'll start moving away from the meme about mortgages. When credit card and auto loan backed securities and other kinds of derivative arrangements also begin unraveling mortgages may be small potatoes. I have a longer post on this on one of my blogs. Though I would certainly be interested in people's thoughts on it, I'm fairly certain that anyone who has even read this far has already had their patience tried. Anyway, here's the link: http://onculturalproperty.blogspot.com/2008/01/fed-cut-fictitious-capital-and-value.html The issue is that finance has been completely unregulated and the power of capital to roam, commodify and extract value from everything existing: moreover, this was pitched as a development strategy when it was really a political coup. I'd be interested to see if there was any legislation that was defeated as well; but I'd also be surprised to learn that any legislation that would have made a difference would have made it even close to the floor for a vote. It would have meant questioning the new orthodoxy--whether of the TINA or Third Way variety. > And why would Congress have supported regulation that would have had the > effect of limiting > derivatives that had the effect of increasing mortgage > and home ownership investment? Isn't > that the entire point of the GSEs -- > insure mortgages to induce mortgage lending? The > bipartisan Congress LOVED the GSEs and their investments, encouraged their > expansion > and opposed any proposed regulation (and regulators) that would have > restricted their > expansion. The notion that Congress was all ready to limit derivatives (and > constrict the > mortage market) but for those libertarian theorists seems rather silly to me. I can see how you're having a hard time processing this: you believe that congress is always only working to help "the little guy" rather than the wise investors libertarians think should run the country. Unfortunately, it is usually the other way around and, in so far as the little guy is helped, it is usually in a way that helps the same "wise investors." That they seem to thrive on, as Pam Martens said, Blowing themselves up, should give us some pause in giving them the keys to the economy in the future: but rest assured that will probably not happen. > And that is where I think Mr. Weisberg and the anti-libertarians miss the > boat about libertarians. Libertarians don't doubt that markets can be > irrational and do wacky things -- they just don't think governments are any > smarter than markets. Hank Paulson did not become any smarter when he moved > from Goldmam Sachs to Treasury. > > David Shemano And here's where I think you don't understand what "anti-libertarians" are saying: there is no such thing as a free market, just one which sorts the rights of one group of property holders in a particular way. In asking, suddenly, for the libertarian solution to this crisis (i.e. LET Wall Street blow itself up) the purists can rest assured that no one will do so: millions of pensions, jobs, etc are on the line--millions of people who, whatever you want to say now, did not mean to take this kind of risk. So the major risktakers will get bailed out so they don't blow all of us up... In any case, it doesn't matter to them if Paulson is smarter inside or outside of goldman sachs: in one place he is in the club and in the other he is helping the club stay strong. In both places he has thousands-fold power over all the rest of us. And this is the way the finance sector wanted it. That, after all, is what "deregulation" really meant. For further reading, I recommend /Capital Resurgent/. A brief opening segment of their piece in the NLR written in 2004 is available here: http://www.newleftreview.org/A2538 let me know if you want the full document, assuming, of course, that you don't already have a subscription to the NLR. s _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
