Diesel_dyk
Object in mirror will feel larger than it appears
+178|6300|Truthistan
Commodity Futures Modernization Act of 2000 & Credit Default Swaps & the Enron Loophole

HMMMMM what's all this? well read futher


I was watching CNN today when a commentator began talking about Commodity Futures Modernization Act of 2000 and credit default swaps. This act was incorporated by reference into H.R. 4577, an omnibus spending bill. It was passed by the 106th United States Congress and signed by President Bill Clinton on December 21, 2000 (wiki) just before Clinton left office. This bill allowed wallstreet to gamble like a casino.

I thought I understood credit default swaps to be insurance policies that were traded in an unregulated market. What I never realized was that any two people could create one of these instruments even if they had nothing to do with the original security being insured.

An example of outright gambling would be if you and I could make bet that a certain celebrity would die this year even though we have nothing to do with this celebrity. Just exchange the word for celebrity for "debt X" and the word die for the word default and you've got a credit default swap. It was outright gambling and literally wallstreet became a casino with congress's blessing.

I was more curious so I looked up the bill and get this a provision with the law said this

    "SEC. 117. PREEMPTION. HR 5660
    `(2) This Act shall supersede and preempt the application of any State or local law that prohibits or regulates gaming or the operation of
      bucket shops (other than antifraud provisions of general applicability) in the case of--

         `(A) an electronic trading facility excluded under section 2(e) of this Act; and

         `(B) an agreement, contract, or transaction that is excluded from this Act under section 2(c), 2(d), 2(f), or 2(g) of this Act or title IV of
                the Commodity Futures Modernization Act of 2000, or exempted under section 2(h) or 4(c) of this Act (regardless of whether any
                 such agreement, contract, or transaction is otherwise subject to this Act).'."

That's right, the law actually preempts state law that would outlaw gambling... That means that the drafters of the bill knew that this was out right gambling and included language to prevent state prosecutions. Wallstreet became a casino. That means that some if not all the credit default swaps are simply unpaid gambling debts.... bets that someone has welched on. And taxpayers are going to payoff!!???

Second part of the bill was the Enron loophole
The other part of the Commodity Futures market is the ENRON loop hole that wiki says
"The Commodity Futures Modernization Act of 2000 has received criticism for the so-called "Enron loophole," 7 U.S.C. §2(h)(3) and (g), which exempts most over-the-counter energy trades and trading on electronic energy commodity markets. The "loophole" was drafted by lobbyists for Enron working with senator Phil Gramm[3] seeking a deregulated atmosphere for their new experiment, "Enron On-line"[citation needed].

Several Democratic legislators introduced legislation to close the loophole from 2000-2006[4][5], but were unsuccessful.

In September 2007, Senator Carl Levin (D-MI) introduced Senate Bill S.2058 to specifically close the "Enron Loophole" [6] This bill was later attached to H.R. 6124, the Food, Conservation, and Energy Act of 2008, aka "The 2008 Farm Bill". President Bush vetoed the bill, but was overridden by both the House and Senate, and on June 18th, 2008 the bill was enacted into law.[7]. One specific reason behind its introduction was to address the record high oil prices of the 2000s energy crisis. Since it was enacted, average gas prices of regular unleaded gasoline in the U.S. have dropped $0.357, from their record high of $4.114 on 7/17/2008 to an average of $3.757 as of 9/21/2008[8]"

Very interesting that the loophole was closed in June of this year and that oil is now declining in price.


to sum up what we have here is a
1. housing bubble bursting causing a credit crunch
2. credit default swap gambling debts
3. unregulated commodity gouging

That's three seperate and distinct reasons for the economic crisis and I suppose all three will have to be worked out of the system. At least oil is declining, and the wallstreet talk shop is finally undergoing a correction. I guess the next big bang will be when the credit default swaps blow up... the tax payer is already paying for AIG and I wonder who else is out there needing a bail out.
Diesel_dyk
Object in mirror will feel larger than it appears
+178|6300|Truthistan
A little more digging and I came up with this section of the act

H.R.5660
Commodity Futures Modernization Act of 2000
SEC. 206A. SWAP AGREEMENT

The relevent part of sec. 206A reads a swap agreement is defined as "the financial risk associated with a future change in any such value or level without also conveying a current or future direct or indirect ownership interest in an asset"

Without also conveying direct or indirect ownership in an asset means that there are just two people placing a bet on whether the value will go up or down. They don't actually own anything and by definition they are not conveying an asset.... these instruments have no asset and are just gambling debts... I think we need to send Tony Soprano down to AIG to break some knee caps before the government decides to cover the bets of the welchers.

Last edited by Diesel_dyk (2008-10-06 19:58:12)

usmarine
Banned
+2,785|7067

usmarine wrote:

i would say credit swap made by the practice of lending to low income people is the main cause of the problem.  people discount the CRA and HUD as irrelevant to the issue.  but, if they would look at credit swap, they would see that is the main cause.
yup.
FEOS
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+1,182|6716|'Murka

It's all Bush's fault.
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