Congressman Dennis Kucinich

Washington D.C. – After voting against H.R. 3962 – Affordable Health Care for America Act, Congressman Dennis Kucinich (D-OH) today made the following statement:

“We have been led to believe that we must make our health care choices only within the current structure of a predatory, for-profit insurance system which makes money not providing health care. We cannot fault the insurance companies for being what they are. But we can fault legislation in which the government incentivizes the perpetuation, indeed the strengthening, of the for-profit health insurance industry, the very source of the problem. When health insurance companies deny care or raise premiums, co-pays and deductibles they are simply trying to make a profit. That is our system.

“Clearly, the insurance companies are the problem, not the solution. They are driving up the cost of health care. Because their massive bureaucracy avoids paying bills so effectively, they force hospitals and doctors to hire their own bureaucracy to fight the insurance companies to avoid getting stuck with an unfair share of the bills. The result is that since 1970, the number of physicians has increased by less than 200% while the number of administrators has increased by 3000%. It is no wonder that 31 cents of every health care dollar goes to administrative costs, not toward providing care. Even those with insurance are at risk. The single biggest cause of bankruptcies in the U.S. is health insurance policies that do not cover you when you get sick.

“But instead of working toward the elimination of for-profit insurance, H.R. 3962 would put the government in the role of accelerating the privatization of health care. In H.R. 3962, the government is requiring at least 21 million Americans to buy private health insurance from the very industry that causes costs to be so high, which will result in at least $70 billion in new annual revenue, much of which is coming from taxpayers. This inevitably will lead to even more costs, more subsidies, and higher profits for insurance companies — a bailout under a blue cross.

“By incurring only a new requirement to cover pre-existing conditions, a weakened public option, and a few other important but limited concessions, the health insurance companies are getting quite a deal. The Center for American Progress’ blog, Think Progress, states “since the President signaled that he is backing away from the public option, health insurance stocks have been on the rise.” Similarly, healthcare stocks rallied when Senator Max Baucus introduced a bill without a public option. Bloomberg reports that Curtis Lane, a prominent health industry investor, predicted a few weeks ago that “money will start flowing in again” to health insurance stocks after passage of the legislation. Investors.com last month reported that pharmacy benefit managers share prices are hitting all-time highs, with the only industry worry that the Administration would reverse its decision not to negotiate Medicare Part D drug prices, leaving in place a Bush Administration policy.

“During the debate, when the interests of insurance companies would have been effectively challenged, that challenge was turned back. The “robust public option” which would have offered a modicum of competition to a monopolistic industry was whittled down from an initial potential enrollment of 129 million Americans to 6 million. An amendment which would have protected the rights of states to pursue single-payer health care was stripped from the bill at the request of the Administration. Looking ahead, we cringe at the prospect of even greater favors for insurance companies.

“Recent rises in unemployment indicate a widening separation between the finance economy and the real economy. The finance economy considers the health of Wall Street, rising corporate profits, and banks’ hoarding of cash, much of it from taxpayers, as sign of an economic recovery. However in the real economy — in which most Americans live — the recession is not over. Rising unemployment, business failures, bankruptcies and foreclosures are still hammering Main Street.

“This health care bill continues the redistribution of wealth to Wall Street at the expense of America’s manufacturing and service economies which suffer from costs other countries do not have to bear, especially the cost of health care. America continues to stand out among all industrialized nations for its privatized health care system. As a result, we are less competitive in steel, automotive, aerospace and shipping while other countries subsidize their exports in these areas through socializing the cost of health care.

“Notwithstanding the fate of H.R. 3962, America will someday come to recognize the broad social and economic benefits of a not-for-profit, single-payer health care system, which is good for the American people and good for America’s businesses, with of course the notable exceptions being insurance and pharmaceuticals.”

With citizens in all walks of life losing their jobs and needing hope, some officials more concerned about grandstanding they hope will lead themselves to higher political office than to addressing the suffering of the people who elected them.

When people need hope, more money in their pockets, possibility of new jobs opening up for which they are qualified, we are unfortunately faced with some politicians who are more interested in spreading lies than in solving problems.

Yes, we all have to support our government through taxes. Yes, we need to be as frugal as possible with public money. Yes, we need to cut pork out of all budgets—federal, state, local or personal.

But first we need to bail ourselves out of the mess we’re in.

Will Durant said, “Education is a progressive discovery of our own ignorance.”

We taxpayers have blithely believed that we could allow bankers, Wall Street, and our financial system to police itself. We forgot that these people have only one agenda—to make themselves as rich as possible with no regard for anyone else’s welfare.

Bankers who gave out loans as “sub prime” lending knew that they were going to raise interest rates on these poor unfortunates to the point that they would lose their houses. The banker didn’t care because he knew he would get his commission on the loan and eventually the bank would get the house. Amazingly, he forgot that banks aren’t in the business of holding astronomical numbers of houses on their balance sheets in order to resell them at a future date—especially when the bottom falls out of the real estate market.

Wall Street has encouraged average Americans who know absolutely nothing about the risks of investing in stocks to put their life savings into buying stocks. The old adage, “What goes up ultimately goes down,” works well in the stock market. If you can’t afford to lose every penny you invest, you have no business gambling in the stock market—because that’s what it is—gambling!

Oversight agencies in the government didn’t bother to check out some of the Ponzi scheme brokers so their clients are now poverty stricken.

The bottom line is that unless you are well educated about finances, you can get taken for the horror ride of your life.

Vernon Law

Education for whatever faces you in life is not always presented prior to its need. Vernon Law said, “Experience is the hard teacher because she gives the test first, the lesson afterward.”

We’ve had the lesson. Our country and many of its citizens are scalding in hot water. We now need to stop focusing on our fears and educate ourselves into a becoming a more productive society.

We have the capacity to get our society back on kilter. We have the energy to help each other in times of trouble. We have the know-how to reinvest in ourselves, our children and a more equitable distribution of resources in this country.

Listen to people who have a positive message. Support those who are trying to bail us out. Solve today’s problems and the future will take care of itself.

This country has spent trillions on wars during the past. It is necessary to defend ourselves at times of threat. We are now challenged to spend trillions on revamping our own infrastructure. We are resilient enough to spend where it is necessary, cut back on frivolous pursuits, and restructure our society so that our children have a better life.

Samuel Clemens - Mark Twain

Mark Twain said, “Keep away from people who try to belittle your ambitions. Small people always do that, but the really great make you feel that you, too, can become great.” H. G. Wells asserted that “History is a race between education and catastrophe.”

Educating yourself on the current situation means choosing messages that are sent from those without a personal agenda for blowing one’s own horn at the expense of the good of all.

Our system allows for fools to shout as loudly as the wise. It is up to each of us to judge which message we wish to hear and to act accordingly.

Personally, I choose hope, because the alternative is unthinkable.

Let’s remember how money, on which our economy is based, started out simply as a system of “trade.” Now days money is capital, and capital is for making more capital. It’s called capitalism. And it’s not the market with which my mother traded…not at all!

Too many years ago, when my mother would go to town from our farm, she didn’t go to the store. She went to “trade.”

I never thought twice about why she would say “trade,” and the rest of us would say we were going to buy something.

Of course, Mom wasn’t a dummy. Maybe she was more of an economist than the guys who deal with capitalism for the Federal Reserve.

You see, Mom knew the proper use of money. She would take eggs and cream into town, for which she would get paid. She would take her egg and cream money and go to the store to buy sugar and flour. Essentially, she was using the money as a means of bartering. Instead of taking the cream and eggs to the grocery store to haggle with the store owner, who wasn’t equipped to handle the cream and eggs from the local farmer, she used a middle person, the creamery, to change the eggs and cream into money.

This is how the economy worked when I was a kid. In good years, the crops would come in. The farmers would be awash in money after a long dry period of buying sparingly at the store, running their grocery tab up at the store, and maybe borrowing just a little ’til the crops came in.

It was this way year in and year out. Very few farmers got tremendously rich, but they made it. A few made more, invested their money in the other market.

When I left to go to college, the farm crisis began. The capitalists, the big grain companies, merged into about three. Competition went down at the market. The stockyards in Omaha closed down. The nearest was now in Chicago, too far away for most of the Southwest Iowa farmers.

As this “more mature” economy changed, interest rates went up at the local banks. So grain prices and stock prices were down. Interest rates were up. Farmers weren’t able to pay on their loans which were being called in. As many with a few gray hairs know, this was clean out time for the farmers. Small farmers were forced to sell out in order to pay off their loans. The farmers who survived got bigger. And of course, big business, like Prudential Insurance, got into the farm business. Farming went from being agri-CULTURE to becoming agri-BUSINESS.

A farm family

I bring up what happened on the farm and with my parents, who eventually had to sell out, never paying off their farm loan, to show how our economy isn’t mature and too complicated for the common person to understand.

No, it’s just plain corrupt. Our capitalistic economy isn’t about money that is involved with trading at the local market. It is about growing capital, that’s all.

Capital, of course, is what you have to invest after doing all your trading to get what you and your family need to survive.

The rich uses capital to make more capital. As their capital grows, tied up in investments in what they want to invest in to grow their capital, not to feed their families, the rich get richer, and you know the rest of the story, the poor get poorer, like my parents did.

West Tennessee General Store circa 1936

And like those left behind with the so-called collapse of our capitalistic economy today, my parents worked darn hard, much harder than any CEO out there who uses his or her company’s profits to invest in other companies, to do mergers, to gamble on Wall Street. But the capitalistic system puts different values on workers depending on what type of shirt they wear or where they went to school or who their parents and grandparents are. The workers don’t make money to invest in capitalism, but their very lives are controlled by such a system.

A friend of mine startled me one day when she asked me to tell her one name of one person who became rich because he or she worked hard. I could give her no name. She reminded me that those who were rich were rich because their money worked while they simply raked in the growth from their money. That is what capitalism is: growth in money that some can afford to invest.

And when the investments go bad, or when those on Wall Street screw up stupidly or intentionally, they get bailed out. Their salaries are capped at $500,000 a year. Meanwhile the guy in the t-shirt loses his job in the factory and goes on food stamps.

Our government is concerned about providing jobs so the guys at the top and middle will not be without jobs. The government knows that jobs must be ongoing so workers can buy and so the producers can sell and so that the rich can get richer again before all the money ends up at the top again.

As you’ve probably noticed, you can blow up a balloon once and maybe twice, but after two or three times, the balloon is worn out. This is how I see our capitalistic economy. This system that rules our economy is worn out. A new economy needs to be put into service. Will our leaders be able to look outside the balloon of capitalism, and create something more just, more responsive to the workers, the disabled, the elderly and our future generations?

At this time in our economic history, we need creativity, imagination and guts to think outside the balloon. Will the folks we elected be up to the task?

And we have to remember my mom with her household eggs and cream. Remember, the Greek origin for the word economy is “oikos,” which means house. Mom was the true economist, not a capitalist!

About Rachael Bliss

Lived most of my life in Tennessee, and now enjoying the wacky world of Asheville, NC, where I work for an environmental group as a VISTA volunteer. I am the proud grandmother of three.

Website: http://peoplepowergranny.blogspot.com/

Does the word “recession” come to mind?

Timing is everything, and this economic downturn arrives on the heels of a long hot storm-laden disaster-ridden summer in the South and East, with the fall and incipient winter heating season across the northern half of the country.

The 1930’s depression was marked by a 25% unemployment rate, widespread bank failures and millions of American suffering homelessness and hunger. In checking a series of surveys, including a CNN POLL,  21-23% of Americans feel a recession imminent, over 35%  said is a strong possibility. That’s nearly 60% of America’s citizens looking with pessimism at the prospect of financial woes that will not turn around anytime soon. Richard Fuld, former CEO of bankrupt Lehman, calls the the current economic woes a ‘crisis of confidence,’ a term that is of little comfort to anyone.

It’s not just happening here; nations around the world are watching their economies being sucked into an ever-widening whirlpool of loss. Iceland is on the brink of bankruptcy. Russia lost 19% of its market, Brazil, 15%.Jakarta dropped 12%. Japan’s on shaky ground. Europe is staggering under a steady stream of loss.

On the homefront, American’s are looking at the bottom of their investments; those with years before they may need to draw on assets may be somewhat less panicked while others, including a surge of baby boomers, with retirement looming ever closer are worried that the fiscal downturn will hammer their retirement plans to oblivion.

Everyone is watching America and the upcoming Presidential election, which is a battle between same old-same old and the prospect of change. Americans are registering to vote in record numbers, and that a refreshing sight to see. A presidential race that originated when Iraq was the voter’s top concern has now shifted to the economy, the economy, the economy.

Tomorrow, and for weeks to come, all eyes will be on Washington and Wall Street, watching what the market does and what our nation’s leaders are doing to deal with what can only be described as a fiscal “crisis.” The shift from recession to depression is, in the minds of many Americans, happening, despite faint hopes and spurts of optimism that an infusion of bail-out money will ease the crisis and tamp down concerns.

Like many Americans, I’ve been following the financial roller coaster ride that is Wall Street and the American financial system, though I may have been following it longer than most. Years, in fact.

In recent weeks I’ve corresponded with a New England friend who, after years of fiscal nonchalance and escalating debt decided to straighten up and become fiscally responsible. It took him five years or so to pay down all his debt, establish a fiscal net worth in savings and investments — and keep it that way. He’s the first to admit “it’s not easy.”

The first rule of thumb, he says, is pay down your debt. The second rule of thumb is “if you can’t pay for it, don’t buy it.” It doesn’t get more straightforward than that, unless you live in a culture like ours in which you are primed to consume beyond your means. Keep up with the Joneses until you both sink. It’s been the American way for some time now.

Today I read numerous stories of average Americans being hit by stock market losses, foreclosure notices, and credit card companies that are suddenly jacking up the interest rates on even their best customers…in one case, the credit rate jumped from 7% to 26% overnight. Insanity. Especially if those credit cards have been funding an overextended lifestyle.

Like many Americans, I am feed up with executives with multimillion/paychecks and even more in the “severance” packages or golden parachutes and the corporate windfall profits that seem to be built on the back of our consumerism.

Unlike many Americans, I also have developed little patience for those who play the “keep up…” game and overshoot their means by virtue of those little plastic credit cards. Unlike many Americans, I have little patience with those who can’t take the time to figure what a mortgage will really cost before they sign on the bottom line with black ink destined to turn red.  Playing Devil’s advocate, a friend today said “many people are not aware or savvy enough” to understand the (mortgage) process; some lenders have prodded them into signing things they don’t understand, or persuaded them to go for more than they can afford. If you don’t understand a contract, whether it is for a camera, a big screen TV, a car or a house, ask someone who knows (that includes consumer organizations). Read the fine print. Ask for details. Be specific. How much will it really cost? My mother would have said “If it seems to good to be true, it probably is.”

Some of my friends laugh at me because I “pay cash.” I have a system that works, and it starts with the essentials of housing, utilities, and food; internet access is important (school), cable TV is not. Anyway, anything I want to see I can view online, including TV shows and movies, which makes cable irrelevant. I use the local library as an alternate resource. When the essentials are covered, I can then do two things: (1) set some money aside and (2) maybe, maybe, treat myself to a movie, a lunch, or something. I have a “wish list” of things I’d like to have, and when I have the money saved, I get them. Time has an interesting way of reshaping that wish list; often when it comes time to buy, the priorities have changed. And that’s okay. Either way, I am not going into debt. The only true wild card is that of medical care/emergency.

The refrain of the past few weeks in America begins with the words “recession” and the really scary word, “depression”; it has also included terms like “thrifty” and “conservative.” At the core of solutions to fiscal crisis, both the latter words are apt. It is not necessary to keep up with the Joneses. It is not necessary to have the latest X-Box. It is not necessary to buy every new movie on DVD. (Main Street may not like it but it is survival of the fiscally fit.) It will not kill you to eat at home and eat leftovers from time to time (in fact, it will probably be better for you if you prepare healthy food at home). It will not kill you to plan your travel in a way that uses the least amount of gas. It will not kill you to add a sweater and, as the cold weather approaches, turn the thermostat down a degree or two or three, put an extra blanket on the bed. It will not kill your children if you spend less than $500 apiece on them for Christmas.

I know that the main idea of the experts is too pump more money into the economy to remain solvent, to money fluid and flowing, to keep business alive. It is a fine walk that is shuffling around the world; foreign markets are not immune. I also know that as consumers, and American economic survivors, it is essential to become frugal, and rethink many aspects of our lives. All things move in cycles over varying periods of time. Relief will not be easy, and will require hard and probably painful decisions.

We have been lax in minding our personal business, extravagant in meeting excessive “wants,” and deserving of chastisement for failing to teach our children and their children the value of thrift, of wisdom of savings, the reward of  “earning” something rather than impulsively paying with plastic and promissory notes.

It is a lesson that starts at home, long before it works its way to Main Street and on to Wall Street.  As a country, we’ve earned a failing grade in economics. As we move through this pick-up-stick economic game all we can do is survive and learn from it, redevelop old-fashioned skills.

My mother also said something about “the school of hard knocks.” Translation: experience is great teacher. Translation: Don’t spend what you haven’t got or can’t afford.

“It is extremely difficult for most of us to get our minds around what this extraordinary amount of money means.  We hear every day about spending cuts to infrastructure and social services. Now the current Administration is proposing to spend more than what is currently allocated for the U.S. War in Iraq on this Wall Street bailout.  It is critically important that we urge our elected representatives to take a close and careful look at the trade offs involved in their decisions.”

~~ Jo Comerford, Executive Director of National Priorities Project.

A healthy and productive economy requires substantial investment in affordable housing, health care, education and renewable energy. Taxpayers in the United States who will be required to pay $700 billion for the Wall Street bailout should also know that for the same amount of money, they could secure the following:

• 51.6 million people with health care for four years OR
• 181.2 million homes with renewable electricity for four years OR
• 2.9 million elementary school teachers for four years OR
• 27 million four-year scholarships for university students

$700 billion is more than what is currently allocated for the U.S. war in Iraq. This amount would allow us to repair all of our nations 77,000 deteriorated bridges and still have $519 billion to spend; or it would allow us to rebuild all of our nations 33,000 deteriorating schools and still have $664 billion to spend. For more analysis and trade-offs at the State and Congressional District level, please visit National Priorities Project’s Trade-offs page online (www.nationalpriorities.org/tradeoffs).

Submitted by: Jillian Hanson, Communications Director, and Jo Comerford, Executive Director of The National Priorities Project (NPP), a 501(c)(3) research organization that analyzes and clarifies federal data so that people can understand and influence how their tax dollars are spent.  Located in Northampton, MA, since 1983, NPP focuses on the impact of federal spending and other policies at the national, state, congressional district and local levels.  For more information, go to http://nationalpriorities.org.

“Once is happenstance. Twice is coincidence. Three times is Enemy Action.” — Auric Goldfinger, Ian Fleming’s James Bond

In 1982, the same year John McCain entered the Senate, a bill was put forward that would substantially deregulate the Savings and Loan industry. The Garn-St. Germain Depository Institutions Act was an initiative of the Reagan administration, and was largely authored by lobbyists for the S&L industry — including John McCain’s warm-up speaker at the convention, Fred Thompson. The official description of the bill was “An act to revitalize the housing industry by strengthening the financial stability of home mortgage lending institutions and ensuring the availability of home mortgage loans.” Considering where things stand in 2008, that may sound dubious. It should.

Seven years later, the S&L industry was collapsing. What was the cause? Garn-St. Germain handed the S&Ls a greatly expanded range of capabilities, allowing them to go head to head with full service banks, but it didn’t give them the bank’s regulations. Left to operate in an anarchistic gray area, S&Ls chased profits, indulged in amazing extravagances, and cranked out enough cheap mortgages to fuel a real estate boom. They also experimented with lots of complex, creative — and risky — investments, even though they didn’t have the economic models to really determine the worth of the things they were buying. The result was a mountain of bad debts and worthless “assets.”  Does any of that sound eerily (or nauseatingly) familiar?

It wasn’t a foregone conclusion. In 1985, three years after the deregulation of the S&Ls, the chairman of the Federal Home Loan Bank Board saw that the situation was already looking shaky, with the potential to become much worse. He instituted a rule to limit the amounts and types of investments S&Ls could carry on their books in an effort to head off disaster. However, many savings and loans — among them Lincoln Savings & Loan Association of Irvine, CA, which was headed by a fellow named Charles Keating — promptly ignored these rules.

Alan Greenspan

Now enters a familiar cast of characters. First to pop up was the universally beloved Fed-chief-to-be, Alan Greenspan. Greenspan argued against the loan board’s new rules, and persuaded Reagan to appoint one of Keating’s pals to the board to blunt the requirements. A quintet of senators, among them John McCain, began having meetings with both the management at Lincoln and the regulators at the loan board.  Alan Greenspan also helped out with a letter to the regulators, asking that Lincoln be exempt from the new rules. With their help of Greenspan and their pet senators, Lincoln was able to stay in business an additional two years, at the end of which they failed — taking the life savings of 21,000, mostly elderly, investors with them.

How involved was John McCain? McCain and Keating had known each other since 1981 and had become fast friends. Of all the “Keating Five,” it was McCain who moved into the life of the Lincoln S&L chief. The two men vacationed together multiple times, with the whole McCain clan (babysitter included) heading out for Keating’s private Caribbean property on Keating’s private jet. McCain didn’t think to actually report these trips, or pay for them, until the investigators were breathing down his neck. And McCain took his payment in the form of more than just vacations. Keating and other members of Lincoln’s parent company padded McCain’s pockets with $112,000 in campaign contributions.

In John McCain’s biography, he called his meetings with Keating and regulators “the worst mistake of my life,” though from the text you’d think this was a spur of the moment decision, not something that McCain did repeatedly over a space of years. Still, you might think that a “worst mistake” would stay fresh in his memory.

It certainly didn’t fade quickly for the country. Following the S&L crisis, the Resolution Trust Company was formed to swallow up the debt of Lincoln and 746 other S&Ls gone wild, and taxpayers were left with the $125 billion bill. The resulting budget deficit forced cutbacks in other programs. The artificial real estate boom collapsed and housing starts fell to their lowest levels in decades. Finally, the whole nation settled in for a period nasty enough that three years later someone could still campaign around the idea “It’s the economy, stupid.”

Phil Granmm, John McCain

Even so, by 1999 Phil Gramm — who had entered the Senate two years after McCain and quickly become the economic guru of the Keating Five maverick — put forward the Gramm-Leach-Bliley Act. This Act passed out of the Senate on a party line vote with 100% Republican support, including that of John McCain. (To be fair, the bill eventually passed again with a wide margin following revisions in the House.)

This act repealed part of the Glass-Steagall Act. This may sound like a bunch of Congressperson soup, but the gist of it is that Glass-Steagall was put in place in 1933 to control the rampant speculation that had helped cause the collapse of banking at the outset of the depression, and to prevent such consolidation of the banks that the nation had all its eggs in one fiscal basket.

Gramm-Leach-Bliley reversed those rules, allowing not only more bank mergers, but for banks to become directly involved in the stock market, bonds, and insurance. Remember the bit about how S&Ls failed because they didn’t have the regulations that protected banks? After Gramm-Leach-Bliley, banks didn’t have that protection either.

Gramm wasn’t done. The next year he was back with the Commodity Futures Modernization Act, which was slipped into a “must pass” spending bill on the last day of the 106th Congress. This Act greatly expanded the scope of futures trading, created new vehicles for speculation, and sheltered several investments from regulation.

As with both Gramm-Leach-Bliley and Garn-St. Germain, large parts of this bill were written by industry lobbyists. This famously included the “Enron Loophole” that exempted energy trading from regulation and was written by (big suprise) Enron Lobbyists working with Gramm. Not coincidentally, Senator Gramm, the second largest recipient of campaign contributions from Enron, was also key to legislating the deregulation of California’s energy commodity trading.

Thanks to this fortunate trifecta of Gramm-crafted legislation, Enron was able to create “EnronOnline” and trade electricity in California with absolutely no oversight or transparency. They quickly worked out how to game the system. Previously, there had been only one Stage 3 rolling blackout in the history of California. Within months, the system had been manipulated by traders to generate 38 such blackouts and wholesale electrical prices had gone up more than 3000%. Despite production capacity equal to four times the demand during winter, energy traders even engineered a blackout in mid-January.

During the confusion of these deliberate “shortages” and “price spikes,” the California administration of Gray Davis — blind to speculator manipulations because of the walls erected by Gramm’s legislation — was forced to sign energy contracts at enormous rates. There was little choice, because most of California’s public utilities were on the brink of bankruptcy from the rising wholesale prices.

In a single year, Gramm’s legislation allowed speculators to bring the state to its knees. Enron alone looted California of $11 billion. The manipulations of the energy market were also a major factor in Davis getting the hook, helped usher the governator into power, and they still have repercussions in California’s budget battles today. By the end of that year, the depth of Enron’s deception could no longer be hidden, and the whole company came crashing down in the largest bankruptcy in history — at the time. This brought more billions lost in mutual funds and pension funds across the country, and played a major role in the economic downturn of 2001.

But that was only the second act. The combination of Gramm-Leach-Bliley and the Commodity Futures Modernization Act was a toxic cocktail whose total damage was greater than the sum of its parts.

The first Act promoted bank buyouts and mergers that reached such an insane pitch that the average consumer could only keep up by tracking the changing names on their checks and credit cards. Mercantile buys Ameribanc and Mark Twain. Firstar buys Federated and First Colonial. US Bancorp buys Mercantile and Firstar. And, because it allowed brokerages and insurance companies to mingle with banks, the Act cemented a trend that was already (and illegally) underway in which all those terms had become rather quaint. Is Wachovia a savings bank, an investment bank, a brokerage, or an insurance provider? The answer is “yes.”

In allowing financial institutions to grow to Godzilla-sized proportions, Gramm-Leach-Bliley helped ensure that we would have financial entities that were “too big to fail.” Rather than choosing to enforce rules that kept these institutions apart, the deregulators chose to create monster bankeragasurances whose downfall (and existence) was enough to threaten the whole system.

But if Gramm-Leach-Bliley removed the limits on size and scope, these new institutions still needed fuel. With many financial transactions operating on razor thin margins, and increasing automation sapping the profits from trading of all sorts, they needed a new way to generate the funds required to swallow their brethren in the merged fiscal corporation pond.  For that, the Commodity Futures Modernization Act was a godsend.

Among those instruments which the CFMA sheltered from regulatory scrutiny was something called the “credit default swap.” A kind of insurance one bank could exchange with another, credit default swaps supposedly made it safe for banks to take on ever riskier forms of debt. The Act didn’t invent these swaps, though they were relatively new. Instead, by placing them in a state where they were not only unregulated but almost perfectly opaque, credit default swaps were turned into the perfect vehicle to fuel a Wall Street revolution. No one had any idea what these things were actually worth, they were traded “over the counter” without being administered by any exchange, and even the SEC could monitor their existence only indirectly.

Who would cheer for a new kind of financial instrument that was difficult to understand, invisible to regulators, and impossible for even the whizziest of Wall Street whiz kids to value? Guess.

More recently, instruments that are more complex and less transparent–such as credit default swaps, collateralized debt obligations, and credit-linked notes–have been developed and their use has grown very rapidly in recent years. The result? Improved credit-risk management together with more and better risk-management tools appear to have significantly reduced loan concentrations in telecommunications and, indeed, other areas and the associated stress on banks and other financial institutions. — Alan Greenspan, 2002

Get that? Greenspan loved credit default swaps. He opined again and again that such instruments would be the salvation of the industry by spreading around risks. To the mighty Greenspan, both their complexity and their lack of transparency were good things, since swaps would only be handled by the big boys who knew how to play with fire.

When questioned about his support of Gramm’s legislation, John McCain called his friend (and by then, campaign co-chair) Gramm “one of the smartest people in the world on the economy” and pointed out that Greenspan also favored the acts Gramm and his coalition of lobbyists had authored. If both Gramm and Greenspan were on his side, McCain couldn’t possibly be in the wrong.

Except, of course, that he could.

From the beginning, there were plenty of people in the financial community whose opinion of these unregulated credit swaps was not as rosy as that of Gramm, Greenspan, and McCain. Chief among those speaking in opposition was SEC Chairman, Arthur Levitt. Levitt argued that what the industry needed was more transparency, especially when it came to complex instruments like default swaps, and he testified to this before Gramm’s Senate Banking Committee.

“In my judgment, the risk of this regulatory approach is simply unacceptable for America’s investors.” –Arthur Levitt, 1999

Gramm paid no attention.

Credit default swaps did allow the banks to share risks. So much so, that banks raced each other in an effort to find more risks. They made it possible for the down payment on homes to become 3%, 1%, 0%. Skip the credit check, avoid the employment requirements, damn the torpedoes, full speed ahead! We’ve got a credit default swap, we can do anything!

The encouragement and “safety” that credit default swaps provided made the sub-prime mortgage market possible. Just as with the deregulation of S&Ls in the 1980s, the market was suddenly flooded with easy credit. The result was a real estate boom, soaring home prices, and a plague of “Flip that House!” shows on cable.

As the banks piled up crappy mortgages, they heaped on ever more of the credit default swaps — and they still had no idea how to value the things. Worse, they began to trade the swaps themselves as if they were an investment, treating them like something worth holding instead of a big bundle of cartoon bombs whose fuses were already lit. Since very few loans were falling into default at the time, owning a default swap seemed like a way to collect fees without ever paying out. Banks wanted more, and more, and more.

A secondary market for trading swaps exploded into existence, and swaps were traded with absolutely no consideration for the nature or quality of the underlying investment. Swaps changed hands a dozen or more times, growing in “value” as they went. Worse still, no one regulated who could buy a swap, so it was (and is) perfectly possible for a company to acquire swaps that theoretically cover billions of dollars in loans, even if that company doesn’t have a red cent on hand to cover those swaps should the loans default.

How big did this market become? Here’s business correspondent Bob Moon and host Kai Ryssdal on American Public Media’s Marketplace from back in the spring.

BOB MOON: OK, I’m about to unload some numbers on you here, so I’ll speak slowly so you can follow this.

The value of the entire U.S. Treasuries market: $4.5 trillion.

The value of the entire mortgage market: $7 trillion.

The size of the U.S. stock market: $22 trillion.

OK, you ready?

The size of the credit default swap market last year: $45 trillion.

KAI RYSSDAL: That’s a lot of money, Bob.

As in three times the whole US gross domestic product, Bob. And the truth is that Moon probably underestimated. The unregulated and poorly reported credit default swaps may have actually passed $70 trillion last year, or about $5 trillion more than the GDP of the entire world.

So, are you starting to get an idea of just how big a genie Phil Gramm and his pals unleashed?

With some regularity over the last eight years, fiscal whistle blowers have tried to raise their hands and register a protest. Um, sirs? Is it altogether a good idea to run up debts exceeding all the assets it’s even possible to hold? But so long as no one actually had to pay off on the swaps, the party went on.  Even usually conservative (in the fiscal sense) companies like AIG started to worry that they were being left behind and leapt headlong into the swap pool.

Federal Reserve

Shortly after Greenspan’s departure in 2006, the Federal Reserve took the unusual step of issued a joint statement along with the SEC to warn about the risks associated with credit default swaps. But by that point, the damage was already severe. If swaps lost their value, most of those who had played the game would find their giant firms abruptly valued in pocket change. The only solution was to cover the problem with still more swaps and keep moving.

Then a funny thing happened. After years in which banks had handed out loans willy-nilly, guarded by the indestructible swap, people and companies started to really default on those loans. Credit slowed, home prices fell, and the whole snake started to eat itself tail first. Suddenly, credit default swaps were not sources of limitless cash. It turns out that an insurance policy — even a secret, unregulated policy — is occasionally expected to pay. Speculators started to look at the paper they were holding and for the first time realized it could all be worthless. Worse, it could (and did) represent a massive debt; one that no one had the funds to cover.

When Bear Stearns fell apart last March, it was only suspected that a big part of the effort in saving the giant investment bank was keeping their holdings in credit default swaps from unraveling and spreading to other institutions. Naturally, part of solving this problem involved creating a new credit default swap to cover Bear Stearn’s potential debt. But the all-purpose swap was starting to lose its power. Shortly after Bear Stearns went belly up, AIG reported the largest quarterly loss in the company’s history, taking a $11 billion hit on revaluing its holdings of swaps. The party was definitely coming to a close.

When AIG finally collapsed this week, there was no doubt about the primary cause of its failure. The previously well grounded company had “gotten itself involved with something called credit default swaps.” Point of irony alert: Arthur Levitt now serves on the AIG board… or at least he did until the government had to take over most of AIG to salvage the company from the very idiocy Levitt had warned of in 1999.

This week, the Bush administration announced the beginnings of a plan to salvage what remains of the financial markets. At first glance, it appears that the plan will consist mainly of creating a kind of “garbage pit,” a fund or group of funds — cousins of the Resolution Trust that was created during the S&L crisis — into which those people who have dabbled in bad debts can toss their problems. Only this time the cost to the taxpayers is at least $700 billion… and a big bite out of representative democracy.

The expansion of unregulated Savings and Loans in the 1980s brought on the collapse of that industry, a crippling of the economy, and left taxpayers holding the bag. Maybe that was only happenstance. Those pushing for the Garn-St. Germain Depository Institutions Act may not have known what they were doing.

The deregulation of the California electricity market, along with the protections provided to Enron through Phil Gramm’s lobbyist-written legislation brought blackouts, fiscal and political chaos, and left taxpayers holding the bag. But the people who engineered that event — people like Gramm and Greenspan — had already seen what happened with the S&Ls. They should have known better. Still, perhaps that was only coincidence.

The sub-prime mortgage crisis that has not only come so close to utterly destroying the markets, but has ruined the value of many people’s homes and left millions with mortgages they can’t pay, was also the outcome of the deregulation created by these men. The very predictable outcome.  When taxpayers are left holding the bag for $1 trillion this time around, it’s hard to believe it’s any sort of accident.

This is enemy action. This is a bullet deliberately fired into the economy by men willing to exercise their ideology regardless of the cost to taxpayers. Men who have every expectation that they can plunder the system again and again, while the public picks up the tab. John McCain may not have had his finger directly on the trigger, but he was there. He assisted. These were his personal friends and philosophical comrades. He may not be the high priest, but he has been a loyal acolyte in the cult of deregulation.

It may come as a surprise to the champions of deregulation, but nobody likes regulation. The restrictions that were placed on banks, S&Ls, and other institutions in the 1930s weren’t put there because someone thought it would be fun. They were put in place because they addressed problems that had just been clearly and painfully revealed. They were put in place because they were necessary.

It’s bad enough if John McCain didn’t know that. It’s far worse if he did.

About Mark Summer

Mark Summer is a Contributing Editor on the Daily Kos website, and one of the founders of the Political Cortex.  He is also commonly known as Devilstower. You can email him directly at .

We are befuddled and and disciplining ourselves on expenditures. We diligently search for ways to reduce our travel. My daughter in Reno is resolved to not use her car one day a week. As we evaluate our financial flight we have a discoerted feeling that this financial problem is not short term, it will not be over in a few months. Our financial nosedive and free fall won’t be over for a year or two. Maybe.

There is uncertainty about our family finances. As grandparents, the saving for the education of our wonderful grandchildren will diminish as we redirect that part of our budget to survive and meet our personal needs for the basics of life.

Our neighborsare “caught in the undertow of the mortgage crisis or personal debt, losing homes and cars and more.” Others are working hard but getting poorer. There are no quick fixws for our current financial woes.

How shall we live in such a financial turmoil? Simple pieties that faith in Jesus will make everything better isn’t the answer to our woes. However, our faith, whether Christian, Jew, Muslim of any other, is a strength in this struggle. Our baptism, whether as an infant or as a believer, continues to assure us that our spiritual commitment is significant in trying times such as the financial anxiety now terrorizing us.

Our faith reassures us that we aren’t held captive by Wall Street, by oil prices or mortgage rates. Our challenge is to translate and integrate our freedom into daily living and long-term planning in these tumultuous days.

Even in this troublesome period, as God’s children, be that Christian, Jew, Moslem, Hindu, Unitarian and even our neighbors who make no religious profession, a word of praise, a generous spirit and grateful heart will benefit us with endurance, perseverance and vitality. In this worrisome, stressful, taxing and tormenting time, there are spiritual resources within to benefit us and to hold us up.

Continuing to practice the principles of saving, investing, and giving is an expression of our freedom and demonstrates that we will not be shackled from doing good by this alarming economic downturn.

It’s not too dramatic to say that prayer and fasting are often called for in a crisis, “but also vital are honest conversations with family and friends, sharing of ideas, and mutual care.” Thoughtful spiritual communion helps and supports us materially and mentally when financial hardship strikes and sinks its fangs of pain into our dreams.

We are infused inspiration and encouraged with strength and wisdom as we continue to perform spiritual principles of sharing, saving, and spending, no matter how difficult the present time. I still find power in the these ancient words of consolation: “A time to gain, and a time to lose.” ((Ecc 3.6) and “To everything there is a season.” (Ecc 3.1)

In these days, when our enthusiasm and financial gains over the years are being depleted, we can still, with God, live with hope. With determination, discipline and sacrifice we can make this epoch one of spiritual growth.