Credit Crisis the Result of Planned Looting of the World Economy

What we’re now living through, though, is the result of a conscious, planned looting of the world economy. Its roots stretch back decades. And it wouldn’t have been possible without the contrivances of the bought-and-paid-for folks who sit in Congress.

Of course, just because the plan blew up on the looters, taking off a financial finger here and a portfolio hand there, you shouldn’t have any illusion that they’ve retired. In fact, in the “solutions” now being proposed — by Congress — to fix the global and U.S. financial systems, you can see the looters at work as hard as ever.

Question: Why weren’t state insurance regulators more aggressive in regulating AIG?

Answer: Because the federal government had forced them to back off. An aggressive interpretation of the definition of insurance could have let state insurance agencies regulate the derivatives contracts that AIG’s financial-products group was writing out of London. These were, in fact, insurance policies that guaranteed the companies taking them out (banks, other insurance companies, investment banks and the like) against losses on securities in their portfolios.

But Congress had made it very clear in the Commodity Futures Modernization Act — supported by then-Federal Reserve Chairman Alan Greenspan, steered through Congress by then-Sen. Phil Gramm, R-Texas, and signed into law by President Bill Clinton in December 2000 — that most over-the-counter derivatives contracts were outside the regulatory purview of all federal agencies, even the Commodity Futures Trading Commission.

With the new law on the books, the market for credit default swaps exploded from $632 billion outstanding in the first half of 2001, according to the International Swaps and Derivatives Association, to $62 trillion in the second half of 2007.

Question: Wasn’t anybody worried about the risk to the financial system posed by a market that dwarfed the assets of the sellers of this insurance?

Answer: Worry about leverage? You’ve got to be kidding.

In 2004, the Securities and Exchange Commission, after hard lobbying by Wall Street, reversed its 1975 rule limiting investment banks to leverage of 15-to-1. The new limit could be as high as 40-to-1 if the investment banks’ own computer models said it was safe.

Among the measures states were prohibited from enforcing were rules against predatory lending. Not that the federal government stepped in for the states: The Federal Reserve took all of three formal actions against subprime lenders from 2002 to 2007, and the Office of the Comptroller, with authority over 1,800 banks, took only three enforcement actions from 2004 to 2006, according to Multinational Monitor.