The Bet That Blew Up Wall Street

Steve Kroft On Credit Default Swaps And Their Central Role In The Unfolding Economic Crisis

(CBS)  The world's financial system teetered on the edge again last week, and anyone with more than a passing interest in their shrinking 401(k) knows it's because of a global credit crisis. It began with the collapse of the U.S. housing market and has been magnified worldwide by what Warren Buffet once called "financial weapons of mass destruction."

They are called credit derivatives or credit default swaps, and 60 Minutes did a story on the multi-trillion dollar market three weeks ago. But there's a lot more to tell.

As Steve Kroft reports, essentially they are side bets on the performance of the U.S. mortgage markets and the solvency on some of the biggest financial institutions in the world. It's a form of legalized gambling that allows you to wager on financial outcomes without ever having to actually buy the stocks and bonds and mortgages.

It would have been illegal during most of the 20th century, but eight years ago Congress gave Wall Street an exemption and it has turned out to be a very bad idea.

---

While Congress and the rest of the country scratched their heads trying to figure out how we got into this mess, 60 Minutes decided to go to Frank Partnoy, a law professor at the University of San Diego, who has written a couple of books on the subject.

Ask to explain what a derivative is, Partnoy says, "A derivative is a financial instrument whose value is based on something else. It's basically a side bet."

Think of it for a moment as a football game. Every week, the New York Giants take the field with hopes of getting back to the Super Bowl. If they do, they will get more money and glory for the team and its owners. They have a direct investment in the game. But the people in the stands may also have a financial stake in the ouctome, in the form of a bet with a friend or a bookie.

"We could call that a derivative. It's a side bet. We don't own the teams. But we have a bet based on the outcome. And a lot of derivatives are bets based on the outcome of games of a sort. Not football games, but games in the markets," Partnoy explains.

Partnoy says the bet was whether interest rates were going to go up or down. "And the new bet that arose over the last several years is a bet based on whether people will default on their mortgages."

And that was the bet that blew up Wall Street. The TNT was the collapse of the housing market and the failure of complicated mortgage securities that the big investment houses created and sold around the world.

But the rocket fuel was the trillions of dollars in side bets on those mortgage securities, called "credit default swaps." They were essentially private insurance contracts that paid off if the investment went bad, but you didn't have to actually own the investment to collect on the insurance.

"If I thought certain mortgage securities were gonna fail, I could go out and buy insurance on them without actually owning them?" Kroft asks Eric Dinallo, the insurance superintendent for the state of New York.

"Yeah," Dinallo says. "The irony is, though, you're not really buying insurance at that point. You're just placing the bet."

Dinallo says credit default swaps were totally unregulated and that the big banks and investment houses that sold them didn't have to set aside any money to cover their potential losses and pay off their bets.

"As the market began to seize up and as the market for the underlying obligations began to perform poorly, everybody wanted to get paid, had a right to get paid on those credit default swaps. And there was no 'there' there. There was no money behind the commitments. And people came up short. And so that's to a large extent what happened to Bear Sterns, Lehman Brothers, and the holding company of AIG," he explains.

In other words, three of the nation's largest financial institutions had made more bad bets than they could afford to pay off. Bear Stearns was sold to J.P. Morgan for pennies on the dollar, Lehman Brothers was allowed to go belly up, and AIG, considered too big to let fail, is on life support to thanks to a $123 billion investment by U.S. taxpayers.

"It's legalized gambling. It was illegal gambling. And we made it legal gambling…with absolutely no regulatory controls. Zero, as far as I can tell," Dinallo says.

"I mean it sounds a little like a bookie operation," Kroft comments.

"Yes, and it used to be illegal. It was very illegal 100 years ago," Dinallo says.

[idsvoog]

Who wrote the legislation? Who introduced it and co-sponsored it? How do you possibly do this story without examining that?

[gallip]

The bill was introduced in the house by Rep. Tom Ewing(R) among others and in the senate by Senator Gramm(R). both were introduced the day before the christmas break. Neither bill was discussed on the floor and the law was sign by Bill Clinton. A real bipartisan screwup

[gallip]

The "Commodity Futures Modernization Act of 2000" (H.R. 5660) Introduced in the House on Dec. 14, 2000 by Rep. Thomas W. Ewing (R-IL) and cosponsored by Rep. Thomas J. Bliley, Jr. (R-VA) Rep. Larry Combest (R-TX) Rep. John J. LaFalce (D-NY) Rep. Jim Leach (R-IA). The bill was never debated in the house.
The companion bill (S.3283) was introduced in the Senate on Dec. 15th, 2000 (The last day before Christmas holiday) by Sen. Richard Lugar (R-IN) and cosponsored by Sen. Peter Fitzgerald (R-IL) Sen. Phil Gramm (R-TX) Sen. Chuck Hagel (R-NE) Sen. Thomas Harkin (D-IA) Sen. Tim Johnson (D-SD) and never debated in the Senate.

[rvgeoff]

Thank you PaulGa2! Why did CBS not bring this out? Come on Steve, do a follow up on these two members of the Wrecking Crew and investigate what they got out of this. I watched Senators on CPAN giving witness hell over this, but not one of them stepped up to say what their role in this was.

[rvgeoff]

Thank you PaulGa2! Why did CBS not bring this out? Come on Steve, do a follow up on these two members of the Wrecking Crew and investigate what they got out of this. I watched Senators on CPAN giving witness hell over this, but not one of them stepped up to say what their role in this was.

[singitwb]

As usual 60 minutes stops one or two items from the root cause. One has to ask if bad mortgages were not written thanks to prodding of financial institutions by people like Obama. And then there is Fannie Mae and Freddie Mac, thanks goes to Chris Dodd and Barney Frank. In 1995, Bill Clinton signed the re-authorization of CRA 1st created in1977 pressed the gas pedal to the floor. Thanks Dems

[tscc2]

Alan Greenspan saw this same thing happen in the 90''s when derivatives were tied to treasuries and interest rates. When the rates fell the securities collapsed and Orange country pension fund went into bankruptcy. When people wanted to regulate derivatives Alan Greenspan said no. Now he admitted this week he was wrong on regulation. Additionally I have been hearing the no-tax line from the Republicans for 40 years. It is pure bull. Here are the results; Ronald Reagan largest deficits in history; George Bush "no-new taxes" Senior - record deficits and raised taxes; Bill Clinton budget surplus and economic prosperity; George Bush Jr - record deficits and worst economic crisis since the great depression. The Republicans are economic morons. Their save the rich and big business at all cost has crashed our economy. It''s the deficits that have tanked the dollar. Anybody that believes the Republicans know what they are doing with the economy must have brain damage.

[hamiltongrad]

Sen Dodd and Rep Barney Frank forced banks to make "affordable" loans to minorities and others not able to pay the monthly due. Dodd got millions from Banks while "running for Pres. nomination" ? he petitioned to transfer to Senate funds, which he gets to keep !
Biden''s son is "consultant" with banks, at age 28 ! getting millions.
This world problem as been caused by these greedy Democrats.

[hyacinth14-2009]

From Wikipedia:

The "Commodity Futures Modernization Act of 2000" (H.R. 5660) was introduced in the House on Dec. 14, 2000 by Rep. Thomas W. Ewing (R-IL) and cosponsored by Rep. Thomas J. Bliley, Jr. (R-VA) Rep. Larry Combest (R-TX) Rep. John J. LaFalce (D-NY) Rep. Jim Leach (R-IA) and never debated in the House.[2]

The companion bill (S.3283) was introduced in the Senate on Dec. 15th, 2000 (The last day before Christmas holiday) by Sen. Richard Lugar (R-IN) and cosponsored by Sen. Peter Fitzgerald (R-IL) Sen. Phil Gramm (R-TX) Sen. Chuck Hagel (R-NE) Sen. Thomas Harkin (D-IA) Sen. Tim Johnson (D-SD) and never debated in the Senate.

Given the above-stated chronology, it would appear that the House and Senate versions of the bill were introduced just prior to the Christmas holiday in December of 2000, following George W Bush''s (first) election (in November of 2000), while then-President Clinton was serving out his final days as President. The bill was never debated by the House or Senate. The bill by-passed the substantive policy committees in both the House and the Senate so that there were neither hearings nor opportunities for recorded committee votes. In substance, it appears that the leadership of the Republican-controlled Senate and House incorporated the deregulation of credit default swaps into an omnibus budget bill (without hearings or recorded votes)at a time when the outgoing president was in no position to veto anything.

[perk235]

singitwb, do the math. The 7% of defaulted mortgages could be paid of with the $1 trillion that we are giving to financial institutions.

DERVITIVES, DEREGULATED in the Commodities Modernization Act (2000) are the house of cards.

The derivatives market is estimated at $60 trillion--banks don''t make cheap bets!

[hamiltongrad]

Sen Dodd ? how come not blamed by CNN ?

[tbwooten]

RIGHT NOW banks are increasing (adjustable rate mortages) ARMs. Foreclosures continue until the banks address the impact of the ARMS. People pay until they can pay no more and then they foreclose. All of these exotic loans are not subprime. We lump it like its only some poor or lower middle income person. The rest of the people are too embarassed to admit they have an ARM; or some hold on and pay increasing mortgage payments each month until they have no more left to pay then walk away from their dream and life''s investment. Often an upside down investmen; not because the homeowner''s dowm payment. Everyone cannot own a home they say. Yes if their mortgage was not escalating they might. So most people thought that in 2 or 3 years when the ARM came due they could qualify for a mortgage with the same credit that was good enough to get the loan in the first place. Not so much now. If congress wants to stop forecloses. FREEZE ADJustable mortgages from escalating and allow revisiting of these loans to make a situation where the home owner can stay in their home. The alternative is a continous flow of foreclosures until the bank takes a good look at its own practices.

[brianbwb-2009]

"One has to ask if bad mortgages were not written thanks to prodding of financial institutions..." Posted by singitwb

One has to answer no. The CRA was made to make mortgages available to lower income earners, but there was absolutely no requirement to structure them as adjustable rate, interest only, or other shady loan shark type deals, and no requirement to steer people who qualified for normal loans to these shadier loans because of the higher fees made by the agents.

It also did not force these shady loans to be bundled into CDOs and CDOs squared, nor did it force real estate developers to build McMansions only, while neglecting to build affordable housing.

Remember it wasn''t the default of the loans that caused credit to freeze, it was the fact that none of the institutions had the money to back up losing bets worth thousands of times more than the mortgages that were bet upon.

Go back to the real root, if you are going at all, the decimation of the middle class as the result of Reagan''s trickle down economics, created the situation where there were no longer enough middle class borrowers to sustain the industry.

[theller09]

Nice to see Steve Kroft tried to make up for his previous report on the financial meltdown (Oct 5), where he threw viewers a hanging curve, mentioning the outstanding value of CDS''s was estimated anywhere from $50 to $60 TRILLION (four times the US GDP).

The following day, the Dow quickly lost ~500 points. I hope he took a great deal of *** for leaving an impression that a HUGE and totally unexplained time-bomb was yet awaiting investors.

Tonight''s report made up a bit for leaving that gaping hole unexplained. But he neither acknowledged his error nor evidenced any embarrassment.

But tonight''s report still struck me as stilted, an attempt to characterize CDSs simply as "illegal betting". That''s an easy critique, but short-sighted in my view.

To be sure, CDSs were contracts (OK, "bets") that were bought and sold with alacrity on Wall Street, accompnaying the mortgage-backed securities Wall Street firms were peddling. But there%u2019s betting undertaken daily in virtually every market I can think of - the NYSE, Nasdaq, CBOE, NYMEX, etc.

The criticism that these bettors didn''t own any of the mortgages against which the CDSs were written is an off-base criticism, too. Put and call options are bought and sold daily without a requirement to own the underlying security. So too with commodity markets, such as oil.

Maybe Mr. Kroft should sit in on some Finance classes at the Stern School or Columbia It just might serve the nation.

[hyacinth14-2009]

From Wikipedia:

The "Commodity Futures Modernization Act of 2000" (H.R. 5660) was introduced in the House on Dec. 14, 2000 by Rep. Thomas W. Ewing (R-IL) and cosponsored by Rep. Thomas J. Bliley, Jr. (R-VA) Rep. Larry Combest (R-TX) Rep. John J. LaFalce (D-NY) Rep. Jim Leach (R-IA) and never debated in the House.[2]

The companion bill (S.3283) was introduced in the Senate on Dec. 15th, 2000 (The last day before Christmas holiday) by Sen. Richard Lugar (R-IN) and cosponsored by Sen. Peter Fitzgerald (R-IL) Sen. Phil Gramm (R-TX) Sen. Chuck Hagel (R-NE) Sen. Thomas Harkin (D-IA) Sen. Tim Johnson (D-SD) and never debated in the Senate.

Given the above-stated chronology, it would appear that the House and Senate versions of the bill were introduced just prior to the Christmas holiday in December of 2000, following George W Bush''s (first) election (in November of 2000), while then-President Clinton was serving out his final days as President. The bill was never debated by the House or Senate. The bill by-passed the substantive policy committees in both the House and the Senate so that there were neither hearings nor opportunities for recorded committee votes. In substance, it appears that the leadership of the Republican-controlled Senate and House incorporated the deregulation of credit default swaps into an omnibus budget bill (without hearings or recorded votes)at a time when the outgoing president was in no position to veto anything.

[brianbwb-2009]

"Nice to see Steve Kroft tried to make up for his previous report on the financial meltdown (Oct 5), where he threw viewers a hanging curve, mentioning the outstanding value of CDS''''s was estimated anywhere from $50 to $60 TRILLION (four times the US GDP)." Posted by THeller09

He wasn''t wrong, the value of the defaulted mortgages so far is estimated at close to a trillion, subject to change as more and more people are laid off from jobs.

The 56 trillion (actually twice the entire world''s annual GDP) is the estimate of all the "side bets" that these banks and other financial services firms around the world placed upon the paper based on these mortgages, without actually having the money to pay their bets.

As far as legality, at one time slavery was legal, and many people practices it, that did not make it right, as was Nazi-ism, genocide of "Native Americans" and other such anti human activities.

Wall Street deserves to collapse, as it is built on a similar house of cards, rated by agencies paid by the companies they rate, with it''s member firms cooked books, and other corruptions, it is a wonder any idiot still puts money in the hands of those thieves.

[leadmetal]

It is remarkable how the story distorts the picture by not covering the the very root of the problem. Why was it that so many saw the housing boom, the bubble, as a never ending sure bet? What sent out that incorrect signal to so many?

What sent that signal? So many people buying homes. Why was that happening? The federal reserve was fixing interest rates very low, it was creating money hand over fist. This mislead people into thinking that housing would only increase in value, that they were betting on sure thing.

It wasn''t with just credit default swaps either. It was with builders, banks, businesses, and so on. Millions of people who never heard of credit-default-swaps saw the market the same wrong way. All got the wrong idea about the market conditions. How did that just happen? It was because of conditions created by federal reserve policy.

Then there is this nonsense about Greenspan being libertarian. Libertarians don''t believe in central banks and fiat money. They see them as Jefferson did, a threat to liberty. No libertarian can be employed by the Fed, let alone be its chairman. Greenspan stopped being a libertarian somewhere after his essay on gold in the 60s and before he took a job at the fed.

[runnm]

One of the basics of insurance is that the person buying the insurance must have an insurable interest in what the insurance covers. While I can buy insurance on my own life, I cannot buy insurance on someone else''s.

Another very basic principle of contract law is there must be consideration paid for an agreement. As far as I can tell in what I have been able to find out about the credit default swaps, no money ever changed hands. If there was no consideration paid for the swaps, there can be no penalty for default because there is in fact no contract.

Therefore, it stands to reason that there is an argument to be made that not only is this a house of cards, it has been built in the air and if it falls down, no one is the loser.

[hockeyma1]

Isn''t is possible that the lenders and others in the know were investing in the hedge funds/credit swaps? Who was making the side bets the loans would fail? Maybe those who made them? The lobby firm of Fannie and Freddie was channeling money to the republican senators to not support the reform bill. It was the republicans that would not let it to the floor for a vote. The banking committee was republican majority, and Shelby was the chair. Forget the argument the democrats did not support it, we don''t know if there would have been some senate democrats that would have voted for it if it came to a vote...the republicans were publicly campaigning against the reform bill. Maybe they are deep into hedge fund investments.
http://my.earthlink.net/article/top?guid=20081019/48fab0c0_3ca6_1552620081019-1896452256
All the baloney about being "forced to make loans to poor people" does not jibe. How does a senator or congressman "force" a bank to make illegal loans in violation of their fiduciary responsibility? And if the loans are being "forced" on the lenders why would Fannie and Freddie pay lobbyists to stop the reform bill? That bill was their redemption. It doesn''t make sense. If I am being forced to do something I don''t really want to.. and there is help on the way why would I work against the help? Why doesn''t anyone mention Bush''s housing initiative to put even more low income families into homes? The initiative is outlined on the white house web site.

[hockeyma1]

Isn''t is possible that the lenders and others in the know were investing in the hedge funds/credit swaps? Who was making the side bets the loans would fail? Maybe those who made them? The lobby firm of Fannie and Freddie was channeling money to the republican senators to not support the reform bill. It was the republicans that would not let it to the floor for a vote. The banking committee was republican majority, and Shelby was the chair. Forget the argument the democrats did not support it, we don''t know if there would have been some senate democrats that would have voted for it if it came to a vote...the republicans were publicly campaigning against the reform bill. Maybe they are deep into hedge fund investments.
http://my.earthlink.net/article/top?guid=20081019/48fab0c0_3ca6_1552620081019-1896452256
All the baloney about being "forced to make loans to poor people" does not jibe. How does a senator or congressman "force" a bank to make illegal loans in violation of their fiduciary responsibility? And if the loans are being "forced" on the lenders why would Fannie and Freddie pay lobbyists to stop the reform bill? That bill was their redemption. It doesn''t make sense. If I am being forced to do something I don''t really want to.. and there is help on the way why would I work against the help? Why doesn''t anyone mention Bush''s housing initiative to put even more low income families into homes? The initiative is outlined on the white house web site.

[icanbeme]

Thanks to Steve Kroft, his producers and the staff of 60 Minutes for breaking down the early 21st century''s financial crisis in clear, simple terms.

Keep up the fantastic work!

Andrew Humphrey
Detroit, MI
http://www.andrewhumphrey.com

[hockeyma1]

The republicans were in the majority on the banking committee where Dodd and Frank also sat. Shelby was the chairman. How does Shelby or McCain or anyone blame the democrats for reform failure when the republican controlled committee would not let the reform bill to the floor for a vote? Forget the senate democrats...several senate republicans were taking lobby money from Fannie and Freddie to not pass the bill. The republicans were publicly campaigning against it. So if there was "force" used to make these loans...why did the lenders stop the reform bill? It makes no sense unless the lenders and their republican friends were making the side bets the loans would fail. Who was invested in the hedge funds/credit swaps?

[perk235]

RunNM, yes, unless you are the last person holding a card.

[yongz98]

Apparently it was both the Republicans and Democrats in the Congress were in favor of "de-regulation". But the difference is that when things went wrong the Democrats blames the Republicans for "de-regulation".

What a hypocritical way of doing politics!

[jradin2000]

It is clear from this insightful piece that all incumbents who voted yea back in 2000, to allow CDS''s be voted out! I encourage 60 Minutes to make such a list public. As far as funding the bailout, perhaps all participants in hedge funds, investors as well as managers, should pay the lion''s share. They were already high net worth individuals, probably the top 1-2% of Americans, not the 5% Mr. Obama is targeting for his tax increase.

[mjax2008]

Did everyone hear this - this all happened on Clinton''s watch!!! And SHAME on you Alan Greenspan for letting history repeat itself!! You were a child of the depression. You of all people should have done your homework.
60 Minutes, where was your stellar reporting when all this was going down in 2000? Is there anyone with foresight in the world anymore?? You certainly found out the facts about this happening back in the early 1900''s NOW - a little late I might add; how come nobody brought these facts to light in 2000 when CLINTON allowed this?

[skeezix06]

"eight years ago Congress gave Wall Street an exemption"

That would be George W. Bush and a republican Congress. And if I remember correctly, deregulation became all the rage under the Great Reagan God.

For some reason, I''m finding it hard to feel sorry for you.

[gallip]

jradin2000 wrote "It is clear from this insightful piece that all incumbents who voted yea back in 2000, to allow CDS''''s be voted out! I encourage 60 Minutes to make such a list public" Unfortunately this was added as part of an omnibus budget bill (without hearings or recorded votes), This all happened on the last day of the 106th congress before the christmas break and signed into law by a lameduck Clinton in his final days.

[shanev137]

I decided I''m not going to pay my taxes this year.

Screw the government.

[helloall34]

Republicans have led this country for the majority of the last 25 years. They preach smaller government, and business friendly tax breaks. Now when those polices have exploded you want to claim it was somehow democrats that caused this. This is completely ridiculous. The country needs a balance between regulation and government programs and incentive for business. Unfortunately, nether party seems capable of both. It is now time to grow infrastructure and pass policies that are geared toward helping the poor, feeding the hungry, and healing the sick.

[alhal]

The comments from other readers are interesting...
Let''s blame the R''s no its the D''s... Folks, does it really matter? What is of more interest is that out of this misery for most of us a few are getting a huge payoff. Doesn''t seem to me be to be a better arguement for taxing individuals with incomes over $250K and keeping the capital gains tax as is (maybe even raising it to 100% for cases of "ill-gotten" gains).

[bdallsports]

Clinton was President and evidently favored this. But who were the Senators and Representatives who voted for it. During 7 1/2 years since who was President ? Bush of course and what did he do, up to this point in time, to change it? The person who asked for a list of those who allowed this to happen should be published. Wonder how McCain felt about it in 2000? What was his position at that time.?? Not what he says now. Lets see hoe they voted.

[loonsong-2009]

Disgusted 60 Minutes fan.
Today you told us about the Commodity Futures Modernization Act of 2000 and how it helped destroy our economy.Would it not be useful to tell us who pushed this bill through at the last minute? Is Phil Gramm a close friend of the staff?

[befairbart]

Don''t you love the way CBS attributes this to the lame-duck 106th Congress? Hello .... couldn''t you have mentioned Clinton''s name at least once??? Clinton, Greenspan, Frank and Dodd. How are these guys able to deflect their guilt on to Bush is beyond me. They definitely have the MSM to thank. Carl Rove, we need you!

[befairbart]

Don''t you love the way CBS attributes this to the lame-duck 106th Congress? Hello .... couldn''t you have mentioned Clinton''s name at least once??? Clinton, Greenspan, Frank and Dodd. How are these guys able to deflect their guilt on to Bush is beyond me. They definitely have the MSM to thank. Carl Rove, we need you!

[perk235]

Look at what Title III and Title IV descriptions are in the HR5660 Act that was part of HR 4577. Notice, the House has roll call, but the Senate did not to the objections of some senators.

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.

[langek1]

The article did mention Clinton AND Greenspan. After a few minutes research, I found that the bill was sponsored by 4 Republicans and 1 Democrat. We shouldn''t be surprised that Congress takes care of our nation''s business this way. I hope they all lost as much money as I have.

[payasyougo]

"It began with the collapse of the U.S. housing market..."
----

It began with the Community Reinvestment Act.

A Liberal Social Engineering policy forced upon business by government.

[cbsblogger]

If 50% of these financial MBA whiz bangers were Asian or Muslim we''d be hearing the screaming of hatred from the rafters.

[news_bug1]

Greetings from the Midwest Housing Collapse...I must say that CBS has it all! I think in the general election in the year 2012 I am casting my vote for CBS! At least, someone has it right! And, what about that book written by the San Diego professor: didn''t anyone in Washington DC read it? As I sit here I wonder if the Captain of the Titantic was on his cell phone when he hit the iceburg!!! Someone is sleeping at the wheel or is on his cell phone doing nonsense data work! Could that be "W''s" White Horse I mean White House by chance?!? He might as well been on a White Horse at least we could say....GIDDYUP and send him well on his way to Crawford TX!!! Wonder if he is on sleeping medication?

Isn''t the PRESIDENT of the UNITED STATES supposed to be at the wheel? I loved it when he stood before a press conference and said..."well....let''s see if this stimulus works first!" All I say is HA HA HA!...Maybe he should have been reading that professor''s book and taking notes or....perhaps listening to the folks that know a great deal more than he will ever know!...GO BACK TO BASEBALL GEORGE!

I am one of those lucky folks...almost like winning the lottery for LOSERS! I have a house that is worth less than the mortgage! HA...The jokes on me! Why you so ask, I didn''t know that CREDIT DEFAULT SWAPS even existed...Had I, I probably wouldn''t know anymore than our president!

[perk235]

payasyougo,

Do the math. $1 trillion we are giving to financial institutions would more than cover the 7% of mortgages in trouble.

If there were not DEREGULATED CREDIT DEFAULT SWAPS, there would not be financial meltdown ($60 trillion).

[miche927]

For those of you that don''t know about the Commodity Futures Modernization Act of 2000, do a search on any search engine. Wikipedia it (I know it''s not the most reliable source but it looks pretty dead on). Don''t automatically assume that the bill is Bush''s doing because Clinton signed it into law. Consider everything before you make an educated opinion. Get your facts before you accuse.

[severson991]

The CBS Sixty Minutes report on Wall Street Bookies revealed outrageous congressional action. I am angry beyond words at the US Congress, all of them. A unanimous vote? My next step is to verify who voted for the Commodity Futures Modernization Act of 2000 and make sure to never vote for them again and furthermore to be sure that everyone I know and everyone that they know is aware of this betrayal. The jerks voted to de-regulate derivitives and swaps and then when it went badly%u2014and it was destined to do so%u2014they appealed to us citizens to bail the poor devils out. There is a lot of fury in me tonight over this ***. Congress had better straighten up or all of them can go. John McCain and Barak Obama and Joe Biden, I%u2019 m looking up your record on this vote too. Good for Sarah Palin, she was taking care of business in Alaska%u2014maybe she ought to be President. I%u2019m retired and enjoying the West Coast of Arizona this winter. You can bet that I have a lot of time to contact my friends in the next nine days before this election. Isn%u2019t e-mail great!

[claydowner]

This should have been called "Casino capitalism for with profits for an elite group of insiders with the risk backed by Congress". When will we ever learn that legislation such as the Commodity Futures Modernization Act to deregulated markets should never have been passed by Congress. Anytime a special interest group wants federal law to overide existing state laws so they can profit it should be a red flag saying watch out. CBS did a good job on this story. Thank goodness for "60 Minutes".

[donbl1]

Extreme greed is hard to exactly predict but it always eventually occurs.

The lobbyists got this through. The lobbyists from Lehman, Bear and the rest of them. The Congressmen/Senators took the honey and closed an eye to the dangers. OR, they were all lawyers and just stupid on economics.

This was a bipartisan effort and needs to be rewarded as such.

[perk235]

You won''t find the senate roll call vote, only the house. The sponsors:

House: Rep. Thomas W. Ewing (R-IL, Rep. Thomas J. Bliley, Jr. (R-VA) Rep. Larry Combest (R-TX) Rep. John J. LaFalce (D-NY) Rep. Jim Leach (R-IA).

Senate: Richard Lugar (R-IN), Sen. Peter Fitzgerald (R-IL) Sen. Phil Gramm (R-TX) Sen. Chuck Hagel (R-NE) Sen. Thomas Harkin (D-IA) Sen. Tim Johnson (D-SD)

Note that Gramm and Bliley were also part of the 1999 Gramm/Leahy/Bliley Act that also DERGULATED financial institutions and removed protections (REGULATIONS) from the Glass/Steagall Act of 1934.

And Phil Gramm called us a bunch of whiners!

[bluerhinofly]

Great report! I''m curious though, why was there no mention of the bill''s chief sponsor, Sen. Phil Gramm, John McCain''s top economic advisor until July 2008 when he stepped in it by calling the impending financial crisis impacting real Joe/Jane the Plumbers and nearly every other American, "a mental recession." That''s one more for the Republican approach for taking real good care of America.

As Steve Croft noted, the vote took place in a Republican Congress, just before the session ended, and ushered in George W. Bush''s next 8 years at the till. I say we should vote for 4 more years of the same-NOT.

[gallip]

bluerhinofly wrote "Great report! I''''m curious though, why was there no mention of the bill''''s chief sponsor, Sen. Phil Gramm, John McCain''''s top economic advisor until July 2008 when he stepped in it by calling the impending financial crisis impacting real Joe/Jane the Plumbers and nearly every other American, "a mental recession."
Hate to tell you but Sen R. Lugar was the primary sponsorer. Gramm was a co-sponsor. There is blame to go around for the Dems and the Rep''s, after all Bill Clinton signed the legislation.

[bluerhinofly]

Mea Culpa. Gramm wasn''t a chief sponsor; just a co-sponsor. You''re absolutely right...there is more than enough blame to go around, in Congress, on Wall Street, with the Presidents past and present, and on Main street.

Q? Who is sponsoring the next bit of legislation that puts the regs back in force in order to prevent more bad behavior?

[news_bug1]

Greetings from the Midwest Housing Collapse (Part II) Being a former business teacher I am ashamed that I didn''t know or have a clue about CREDIT DEFAULT SWAPS...In my tenure, I never even read about them or studied them in school!

This message is for all the YOUNG people out there! Let this be a LESSON for you and that you will experience the consequences of, during your lifetime as you will have to repay this back!

Furthermore, when you take an active role in the election process remember this example of POOR LEADERSHIP when and if you do vote! I say vote the BUMS out!...and they can host their own cocktail parties in their backyards when they are looking for something to do! Where were YOU are mighty leaders in CONGRESS??? If the job is too tough, find another!