Greenspan as Frankenstein

It’s his monster of exotic derivatives that officials like Massachusetts Congressman Barney Frank are trying to reregulate. His monster:

Speaking in Boca Raton, Fla., in March 1999, Alan Greenspan, then the Fed chairman, told the Futures Industry Association, a Wall Street trade group, that “these instruments enhance the ability to differentiate risk and allocate it to those investors most able and willing to take it.”

Meanwhile, we’re reminded a lot of this fuck-up is bipartisan in the making, another gift especially of the Slickster and his Democratic Leadership Council fellow travelers:

A milestone in the deregulation effort came in the fall of 2000, when a lame-duck session of Congress passed a little-noticed piece of legislation called the Commodity Futures Modernization Act. The bill effectively kept much of the market for derivatives and other exotic instruments off-limits to agencies that regulate more conventional assets like stocks, bonds and futures contracts.

Supported by Phil Gramm, then a Republican senator from Texas and chairman of the Senate Banking Committee, the legislation was a 262-page amendment to a far larger appropriations bill. It was signed into law by President Bill Clinton that December.

How Slick could sign into law anything with Phil Gramm’s fingerprints on it boggles the mind.

Meanwhile, the GOP is still singing the “look here, it’s all OK, no regulation needed” mantra:

Others on Capitol Hill, like Representative Scott Garrett, Republican of New Jersey and a member of the Financial Services banking subcommittee, reject the idea that loosening financial rules helped to create the current crisis.

“I don’t think deregulation was the cause,” he says. “And had we had additional regulation in place, I’m not sure what we’re experiencing now would have been averted.”

Oh, and if someone like Alan Blinder can’t understand derivatives, how can we NOT regulate them more?

“I know the basic understanding of how they work,” he said, “but if you presented me with one and asked me to put a market value on it, I’d be guessing.”

If anybody DOES understand, it might be Kevin Phillips. The former Nixon GOP operative turned serious analytical journalist has a new book out, Bad Money (full title: “Bad Money: Reckless Finance, Failed Politics, and the Global Crisis of American Capitalism”) that probably will enlighten us all too well.

Chris Dodd and Barney Frank want to give the Fed new powers to regulate investment banks, but St. Alan didn’t use the powers he had on commercial banks and so far, St. Bernanke, his Swiss Alps lapdog follower as The Worst Fed Head Since Greenspan™, has shown little additional inclination in that direction.

Meanwhile, a number of people, like former New York Fed President Timothy F. Geithner, were worried, or say they were worried, about the situation several years ago, but refused to be interviewed. Some help they will be in the future.