Reply #49: The excesses of Freddie and Fannie was in buying loans

[karynnj]

that Kerry did argue and co-sponsor legislation to stop. That is arguing the root cause and that was in 2000, 2001, and 2003 - three Congresses in a row. That and running in 2004 on eliminating the most abusive of these mortgages.

If that legislation would have passed, mortgage loans might have been stable enough that the risky gamble of speculating with them might not have failed. As long as housing prices remained stable, the rate of foreclosure and the banks getting the houses back would have led to relatively smaller losses. I loved the Fabio You tubes as they very simply explain what happened. An interesting question is how big the problem would have been had there been no predatory loans.

As to credit default swaps and derivatives writing legislation now might be equivalent to locking the barn door after the horse escaped. Who is selling or buying them now? Obama has already said that one part of what they have to do on banking is writing new regulations. I assume as a member of the Finance committee Kerry will be involved in marking up any bill written. I haven't seen anyone writing that bill yet.

As I mentioned in the long thread we had, I looked but couldn't find a Kerry statement in the Senate record on either Glass-Steagall or the CFA - although he voted against the budgets both were in, but then on the bill Glass-Steagall' was in for the conference report - the CFA was a Voice vote - so he never voted for it, but didn't try to stop it. I suspect that in addition to Greenspan, Summers and Rubin, Kerry's economic advisers likely did not have see the danger. On this, he was not alone. I suspect that Clinton's economic team was able to convince the Democratic Senators that this was ok.

I went back to look more closely at who spoke on the CFA - and there was a strong endorsement by Sarbanes, who headed the banking committee then. He included this letter in his speech:

Hon. PAUL S. SARBANES,
Ranking Member, Committee on Banking, Housing, and Urban Affairs, U.S. Senate, Washington, DC.

DEAR SENATOR SARBANES: The Members of the President's Working Group on Financial Markets strongly support the Commodities Futures Modernization Act. This important legislation will allow the United States to maintain its competitive position in the over-the-counter derivative markets by providing legal certainty and promoting innovation, transparency and efficiency in our financial markets while maintaining appropriate protections for transactions in non-financial commodities and for small investors.

Sincerely,

Lawrence H. Summers,

Secretary, Department of the Treasury.

Alan Greenspan,

Chairman, Board of Governors of the Federal Reserve.

Arthur Levitt,

Chairman, Securities and Exchange Commission.

William J. Rainer,


Chairman, Commodity Futures Trading Commission. "

Harkin, one of the most liberal and populist Senators said:

Mr. HARKIN. Mr. President, I want to thank and commend Chairman LUGAR for all of his hard work and leadership in bringing the Commodity Futures Modernization Act to the point of this final, agreed upon bill, which will be a part of the appropriations measure passed later today. I am pleased to have had the opportunity to work with Chairman LUGAR on this important legislation and to cosponsor it.

This bill will bring much-needed modernization, legal certainty, clarification and reform to the regulation of futures , options and over-the-counter financial derivatives. At the same time, it maintains regulatory oversight of the agricultural futures and options markets and continues and improves protections for investors and the public interest with regard to futures , options and derivatives.

The legislation carries out the recommendations of the President's Working Group on Financial Markets. Members and staff of the Working Group, especially the Department of the Treasury, the Commodity Futures Trading Commission and the Securities and Exchange Commission, were instrumental in helping to craft the bill. And it is significant that this final version of the bill is strongly supported by all members of President's Working Group on Financial Markets. I ask unanimous consent that a letter from the Working Group be printed in the RECORD at the conclusion of this statement. After many years of effort, this legislation resolves a number of very difficult issues regarding the trading of futures on securities--issues that have caused a great many headaches as well as disparities in the markets over the years. I am pleased that we have been able to arrive at solutions that clear away regulatory impediments to market development, while maintaining and strengthening investor protections and addressing margin and tax issues in order to avoid giving any market an inappropriate competitive advantage over others involved in related transactions.

Clearly, modernizing the regulatory scheme for futures and derivatives must be balanced with maintaining and strengthening protection for individual investors and the public interest. The principal anti-fraud provision of the Commodity Exchange Act is section 4b, which the Commodity Futures Trading Commission has consistently relied upon to combat fraudulent conduct, such as by bucket shops and boiler rooms that enter into transactions directly with their customers, even though such conduct does not involve a traditional broker-client relationship. Reliance on section 4b in such circumstances has been supported in federal courts that have examined the issue, and is fully consistent with the understanding of Congress and with past amendments to Section 4b, which confirmed the applicability of Section 4b to fraudulent actions by parties that enter transactions directly with customers. It is the intent of Congress in retaining Section 4b in this bill that the provision not be limited to fiduciary, broker-client 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 and other markets that will develop under this new statutory framework.

I would also like to discuss my views regarding the substantial regulatory changes for electronic markets in derivatives relating to non-agricultural commodities . Essentially, those commodities are energy and metals. With particular regard to energy, given the recent high volatility in energy markets--with dramatic price increases for gasoline, heating oil, natural gas and electricity--we must take great care in whatever Congress does affecting the way in which markets in energy function. In the Agriculture Committee, I worked to remove an outright exclusion from the bill and basically to continue with the substantial exemption the Commodity Futures Trading Commission had already granted for energy and metal derivatives. Later, there were further negotiations to arrive at the provisions on this subject that are in this bill.

While I still have certain reservations about the energy and metals markets, I recognize the need for compromise, particularly in considering the overall importance and positive features of this legislation. This bill's language and Congressional intent is clear that the Commodity Futures Trading Commission retains a substantial role in ensuring the honesty, integrity and transparency of these markets. For exempt commodities that are traded on a trading facility, this bill clearly specifies that if the Commission determines that the facility performs a significant cash market price discovery function, the Commission will be able to ensure that price, trading volume and any other appropriate trading data will be disseminated as determined by the Commission. This bill also clearly continues in full effect the Commission's anti-fraud and anti-manipulation authority with regard to exempt transactions in energy and metals derivatives markets.

I also want to mention and express appreciation for the cooperation of Chairman GRAMM and Ranking Member SARBANES of the Banking Committee in completing this bill. With respect to banking products, the language of the bill clarifies what is already the current state of the law. The Commodity Futures Trading Commission does not regulate traditional banking products: deposit accounts, savings accounts, certificates of deposit, banker's acceptances, letters of credit, loans, credit card accounts and loan participations.

The language of Title IV of this bill is very clear and very tightly worded. It requires that to qualify for the exclusion, a bank must first obtain a certification from its regulator that the identified bank product was commonly offered by that bank prior to December 5, 2000. The product must have been actively bought, sold, purchased or offered--and not be just a customized deal that the bank may have done for a handful of clients. The product cannot be one that was either prohibited by the Commodity Exchange Act or regulated by the Commodity Futures Trading Commission. In other words--a bank cannot pull a futures product out of regulation by using this provision.

For new products, Title IV is also abundantly clear: the Commodity Exchange Act does not apply to new bank products that are not indexed to the value of a commodity. Again, the plain language is clear and the intent of Congress is clear that no bank may use this exclusion to remove products from proper regulation under the Commodity Exchange Act"

Reading through these 2 speeches, it seems they had little idea of the risks.