History-Altering Decisions

#5

Clinton Signs the Commodities Futures Modernization Act

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Clinton signs budget legislation, which included CFMA as a rider

Clinton signs budget legislation, which included CFMA as a rider

When it entered the world in the final days of 2000, almost no one cared a jot about the Commodity Futures Modernization Act. In hindsight, the CFMA turned out to be one of the most momentous pieces of legislation passed during the entire Clinton administration—and one of the darkest spots on the record of Treasury Secretary Lawrence Summers. It began with a simple question: who should regulate derivatives, the Commodity Futures Trading Commission or the Securities and Exchange Commission? By answering “none of the above,” the CFMA essentially deregulated the entire derivatives market, including energy derivatives, as abused by Enron, and credit-default swaps, which allowed AIG Financial Products to binge on unlimited amounts of risk. Enron became the largest corporate fraud in history (and any Californian will be able to tell you about the consequences for energy prices in the state, which were pegged to market prices being manipulated by Enron traders), while AIG’s bailout cost U.S. taxpayers hundreds of billions of dollars that were desperately needed elsewhere. But the most invidious effect of the CFMA wasn’t so much financial as political. It marked the point at which Washington became completely captured by Wall Street. Those who opposed the act were ousted; those who pushed it through, rewarded. Financial laws still can’t get passed unless and until the banks want them enacted. And we’re all suffering the consequences.

Salmon writes the finance blog on Reuters.com. Follow him on Twitter.

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