McCain Defends 'Enron Loophole' - on advice from who else: Phil Gramm the MFr who sponsored the bill

[JohnWxy]

that deregulated futures trading in energy and commodities which lead to the Enron calamity and now the financial industtry failure.


COMMENTARY:
McCain Defends 'Enron Loophole'
by Jason Leopold

May 19, 2008—Sen. John McCain says he opposes the $307 billion farm bill because it would dole out wasteful subsidies, but his chief economic adviser Phil Gramm also wants to stop its proposed regulation of energy futures trading, a market that was famously abused when Enron Corp. manipulated California’s electricity prices in 2001.

Clearing the way for that California price gouging, Gramm, as a powerful Texas senator in 2000, slipped an Enron-backed provision into the Commodities Futures Modernization Act that exempted from regulation energy trading on electronic platforms.

Then, over the next year, Enron – with Gramm’s wife Wendy serving on its board of directors – worked to create false electricity shortages in California, bilking consumers out of an estimated $40 billion.

http://www.baltimorechronicle.com/2008/051908Leopold.shtml


THe Commodities Futures Modernization Act]

Phil Gramm’s Enron Favor
Watchdog: Senator Pushed End to Oversight for Campaign Contributor
James Ridgeway
Tuesday, January 15th 2002

The one person in the Enron scandal whom congress is not likely to subpoena is its own revered Phil Gramm, the retiring Republican Senator from Texas. Gramm and his wife, Wendy, have tight links to Enron, Wendy being a director and Gramm the pusher of legislation that assisted the company during its troubles last year. In December, his press secretary denied the latter charge, saying, "Senator Gramm took no role, had no say, and did not vote on the energy futures provisions."

That's not the story presented by the D.C. watchdog Public Citizen, whose tale goes like this:

In an apparent response to a 1992 plea from Enron, Dr. Wendy Gramm, then chair of the federal Commodity Futures Trading Commission, moved to exempt the company's energy-swap operation from government oversight. By then, the Houston-based Enron was a major contributor to Senator Gramm's campaign.

A few days after she got the ball rolling on the exemption, Wendy Gramm resigned from the commission. Enron soon appointed her to its board of directors, where she served on the audit committee, which oversees the inner financial workings of the corporation. For this, the company paid her between $915,000 and $1.85 million in stocks and dividends, as much as $50,000 in annual salary, and $176,000 in attendance fees, according to a report by Public Citizen, a group that has relentlessly tracked Enron, which in turn has called the report unfair.
(more)
----------------------------------------------------------------------------------------------------------------

By the way this is the bill that made trading in mortgage backed securities possible - which lead to the current crisis in the financial industry. Which will cost us taxpayers $700 billion (latest estimate).

right now, Paulsen is fighting against a provision to the bail out pushed by Democratic Congressmen that would limit the pay of the managers of the institutions being bailed out or bought. They want to have their cake and eat it too!

If this stinks to you go to www.congress.org and tell your representatives to tell Paulsen to "shove it!". If they want to be bailed out, they MUST have controls. They can't have protection and total freedom to engage in wanton business practices too. If they want to enjoy all the spoils of piracy then they will just have to accept the risks too. MY counter-offeris "okay, you can keep your 'whatever-the-market-will-bear' paychecks, but then you can work for the rest of your life until you pay off all the people you ripped off. LEt's see the bill runs to $700 billion. Don't bother going out for lunch. We'll have it brought in for you. You won't be going ANYWHERE - FOR ONE F---ING LONNG TIME.

McCain claims he's really for 'change'. Bull. He has voted for deregulation from word "go". Deregulation is what has resulted in, raging price increases in oil and farm commodities and ... trading in mortgage backed securities which brought us the collapse of the financial industry (without a bailout from the Government - You remember the Government - that's the entity the Neo-Cons have called the enemy).


just my feelings on the matter.

[liberal N proud]

1. What the GOP is doing to America this week is OBSCENE

[JohnWxy]

3. They have been working to de-construct the Government for more than two decades but sure enough -

when these slime balls get in trouble they are the first to go to the Government to be bailed out - only at no real cost to them. The Republican party is just the political wing of private business interests thats why I lump them all together with "they". But for all their talk about small businesses, Republicans are really only interested in the biggest businesses cuzz THAT'S WHERE THE MONEY IS (but when you're in trouble just go raid the U.S. Treasury!.

[redqueen]

2. Oh yeah... I forgot Gramm's wife was on Enron's Board. Tight little band of theives they are.

They couldn't get away with it without help from their friends in the press...

[JohnWxy]

4. this little history of deregulation is very recent and it IS the reason for the outrageous rise in

oil and food commodities (which until the financial melt-down had everybody's interest) BUT YOU WON'T HEAR ABOUT THIS ON M$M. NO WAY, IT WOULD BE TOO DAMAGING TO MCCAIN's CAMPAIGN.

BUT AS NEWS IT IS ESSENTIAL TO THE UNDERSTANDING OF WHAT'S BEEN HAPPENING TO OUR ECONOMY - AS SUCH, IT SHOULD BE A STORY TOLD. BUT CHEERLEADERS LIKE COURIC AND THE GUY ON ABC (can't even remember the Republican fly-divers name, Charlie somethin') WILL NEVER BRING THIS UP. Sure, they will give reports about trading in mortgage backed securities being the problem but they won't mention how this was made possible. Thank Phil Gramm and his wife and the Wallstreet lawyers who WROTE THE BILL (and slipped it in as a rider to an 11,000 page appropriations bill) for that.

[redqueen]

5. Remember when Keith had Wal Mart on the "worst persons" list until they

stopped harrassing that injured woman for her insurance money?

I wish he'd do that with Gramm... worst person in the world until he admits his role in this scandal.

He'd be on the list till hell freezes, and Keith could repeat the story every night until the election.

[JohnWxy]

6. The Subprime Mess and Phil Gramm: An Experiment in Deregulation

http://losangeles.injuryboard.com/miscellaneous/the-subprime-mess-and-phil-gramm-an-experiment-in-deregulation.aspx

Shortly after George W. Bush was elected president, Congress and President Clinton were trying to pass a $384 billion omnibus spending bill (11,000 pages long_JW), and while the debates swirled around the passage of this bill, Senator Phil Gramm clandestinely slipped a 262-page amendment into the omnibus appropriations bill titled: Commodity Futures Modernization Act. It is likely that few senators read this bill, if any. The essence of the act was the deregulation of derivatives trading (financial instruments whose value changes in response to the changes in underlying variables; the main use of derivatives is to reduce risk for one party). The legislation contained a provision -- lobbied for by Enron, a major campaign contributor to Gramm -- that exempted energy trading from regulatory oversight. Basically, it gave way to the Enron debacle and ushered in the new era of unregulated securities. Interestingly enough, Gramm's wife, Wendy, had been part of the Enron board, and her salary and stock income brought in between $900,000 and $1.8 million to the Gramm household, prior to the passage of the Commodity Futures Modernization Act.

~~
~~
Now, Gramm has a second chance of extending his out-of-touch and ill-performing policies, as Senator John McCain appointed Gramm to be his "economic expert" and cochair of his presidential campaign, last year. Also, it is likely that if Senator McCain were to win in November, Gramm would be our next Treasury Secretary, which means more of the same deregulatory mess and the continuation of failed and insidious economic policies.

[redqueen]

7. Wonder if that was the same amendment that included the update on credit swaps /

default swaps.

[JohnWxy]

8. THe CFMA was finally passed as a rider to an 11,000 page omnibus funding bill. It approved credit

swaps. here is an excerpt from a report from the CRS:

full report

Legal Certainty for Swaps and Off-exchange Derivatives.

A long-standing question in derivatives regulation was whether the Commodity Exchange Act applied to
contracts that were not traded on futures exchanges. A plain reading of the pre-2000 law
suggests that it did: in 1974, Congress gave the CFTC exclusive jurisdiction over all
contracts “in the character of” futures contracts, and mandated that such contracts, with
certain exceptions, should only be traded on CFTC-regulated exchanges.

However, in the 1980s, an off-exchange market in derivatives grew up. The major
dealers in this OTC market were banks and securities firms, and the principal instrument
was the swap contract. Although swaps are clearly “in the character of” futures contracts
– they serve the same economic purposes and are often interchangeable – the CFTC did
not move to assert its jurisdiction. The CEA’s exclusivity provisions remained, however,
and were seen as a source of “legal risk” to the swaps market. That is, if a court had ruled
that swaps were in fact illegal, off-exchange futures contracts, trillions of dollars in OTC
derivative contracts might have been rendered void and unenforceable.

The CFMA specifies that the CEA does not apply to contracts between “eligible
contract participants” (which include financial institutions, regulated financial
professionals, units of government, nonfinancial businesses or individual persons with
assets over $10 million, and others whom the CFTC may approve) based on “excluded
commodities,” defined as financial products and indicators (which are thought to be less
susceptible to manipulation than physical commodities with finite supplies).
Derivatives based on agricultural commodities, however, may be traded only on
CFTC-regulated exchanges, because of concerns about price manipulation – “corners”
and “squeezes”– in those markets.


Exchange Trading and Clearing of Swaps.

Exchange Trading. In 1993, the CFTC addressed the issue of legal uncertainty
by issuing regulations exempting financial swaps, a form of OTC derivatives, from the
CEA. (A separate exemption permitted trading of certain OTC contracts based on energy
products outside the CEA.) Under the swaps exemption, swaps were not considered
futures (subject to the exchange trading requirement and other CFTC regulations) as long
as they met several conditions that distinguished them from exchange-traded contracts.
Among the conditions was a requirement that swaps must be bilaterally negotiated
agreements and not traded on an exchange or exchange-like facility open to multiple
buyers and sellers.

However, in the late 1990s there was interest in creating multilateral swaps
exchanges, and at least one such facility began operations. An exchange, where bids and
offers would be exposed to a large number of market participants, could bring more
liquidity to the swap market, and make price information more widely available, allowing
businesses and others to manage their financial risks more efficiently and economically.


The CFMA permits the use of exchange-like electronic facilities for the trading of
OTC derivatives based on excluded (financial) commodities.

[JohnWxy]

9. not sure about this, but that may have been something added by Gramm's wife with Wall Street lawyers

writing it at the last minute before they slipped it in as "night"-rider the night before the funding bill was to be voted on.

[redqueen]

13. Would any other journalist besides Keith or Rachel touch this?

I mean sure we have more lefties on Air America and in the blogosphere... I mean those with wider audiences... the ones who need to hear this stuff for the *first* time.

[JohnWxy]

14. well, do you mean real journalists or those who "play" them on tv?

I think there are some on the Washington Post whose editor would let it print if they wrote about it.

Nobody at NBC, CBS or ABC will feature this (well, maybe on 60 minutes).

[iceman66]

10. Oil is back on the rise today, big time,

thanks largely to this Enron loophole and unfettered speculation.

[ramapo]

11. I forgot how that POS was connected to Enron

Just another link to the old boys network of J. McCain.

[redqueen]

12. Yeah... ain't it grand how the media just leaves this part out?

Like they don't know what led up to this crisis.

[JohnWxy]

15. actually, the cheerleader on CBS news probably doesn't know about this legislative "stuff".

Of course some of the producers who write what goes on CBS News know about this but they aren't going to bring it up.

[redqueen]

16. Shouldn't they?

Isn't that part of their job? Shouldn't Katie Couric, Tom Brokaw, etc. know all this?