A 60 Minutes episode that aired several months ago focused on the Commodities Futures Modernization Act of 2000 (the "Act") and the substantial role it played in our current economic crisis. The Act allowed financial institutions to engage in high-risk derivative transactions and credit default swaps without any regulatory oversight by the SEC or the CFTC. And they did so to the tune of an estimated $50 to $80 trillion dollars -- until many of these institutions became "too big to fail" and were rewarded with substantial infusions of government largess. Not only did the Act prohibit the SEC and CFTC from regulating these transactions, it also prohibited states from enforcing existing gambling and bucket shop laws against Wall Street, which, as 60 Minutes pointed out, appears to be Congressional recognition that these financial instruments were nothing more than high-stakes gambling for the upper class and illegal or at least prosecutable.
As Congress holds hearing after hearing in which our Congressional Representatives and Senators self-righteously deride the greed and avarice of corporate CEOs and the negligence and incompetence of the SEC and other government agencies, the public needs to ask how in the hell did Congress enact this legislation, particularly when the Long Term Capital Management hedge fund so clearly demonstrated the risk of derivatives, leverage and lack of transparency only two years earlier.
As prior postings on this website have described, the Act was slipped in at the last minute by Senator Phil Gramm and other sponsors on December 14, 2000, by being incorporated by reference into a massive Omnibus bill without first being vetted by Committees or debated by the full House and the Senate. The Omnibus bill was approved by the House and Senate the following day on December 15, 2000 and signed into law by former President Clinton on December 21. This procedural masterstroke was nothing short of "gotcha" legislation by legislators who received significant financial support from the financial services industry and it raises many important questions, including the following.
Do the Congressional Rules and Procedures really permit major pieces of legislation to be slipped in for vote without the opportunity for members to review and debate the substance and effect of the legislation? In addition to the Act, Congress also permitted eight other bills to be incorporated by reference into the Omnibus bill even though they were not introduced until December 14 or 15. This suggests that slipping in last minute legislation without proper vetting is an accepted practice. In other words, the rules and procedures observed by Congress when purportedly protecting the people's business apparently are not nearly as stringent as those adopted by the average charity or homeowner association.
Were the other members of Congress duped in the wake of the chaos that followed the 2000 election and US Supreme Court intervention and their desire to wrap things up so they could leave for the holidays? On the floor on December 14, Senator Gramm described the Act "as the finished product of years of work involving half a dozen committees in both Houses of Congress, and as many agencies of the Federal government." Earlier versions of the Act had been considered by the House and the Senate during 2000. The House had passed an earlier version but the legislation then stalled and the full Senate neither debated nor voted on its version. The Act as slipped in by Gramm on December 14, however, differed significantly from the earlier versions and eliminated regulatory federal oversight, but Gramm did not point out the differences in his remarks on the floor. But if Congress was duped, why didn't they take remedial action when they realized what had happened? And certainly, why did all of Congress ignore experts who identified the risk of permitting derivatives and credit default swaps to be traded free of any regulatory oversight and why didn't they take action when the danger of the subprime loans and the high volume of high risks derivatives first became apparent (and when there was still time to prevent much of the damage we are now suffering).
While Congress should hold hearings and question CEOs and federal regulators to determine how this debacle happened and what actions can be taken to prevent future economic collapse, at the same time Congress needs to look into its own internal workings, assess its own role in the crisis, and implement procedures to prevent "gotcha" legislation and insure they do everything they can in the future to protect the public interest. So far, there appears to be little to give us assurance that they are doing so.