There is scrambling by all parties to shift the blame of “who is responsible” for the collapse of our financial institutions.

Republican operatives who just returned to Congress this week, had to tighten their reins over their membership which had just spent their Easter Break mingling among their constituents. Republicans, after hearing first hand from real voters, truly fear they are to be wiped off the face of the planet by November 5th.

And for once, they may be right.

For today, Americans of every economic strata feel betrayed, and naturally possess the anger that goes along with it. Ask any of those holding Bear Stearns stock just how happy they are with Republicans right now.

We all know that emotions are scurrilous things. They occur even when there is little factual evidence to support them. So it has been, with the blame being placed on Republicans for placing our once great prized economy on the auction block……Just fuzzy associations but as of yet there have been no direct links, provable in a court of law, that puts Republican philosophy in the Defendant’s chair.

Until now.

Those of us who have ever been betrayed, remember well those moments when the scales fall from our eyes, and our denial can no longer continue its walk on air. I could not believe my ears as I listened to this radio interview with Michael Greenberger when he spoke on NPR. The conversation is 39 minutes, but it provides a smoking gun that hinges Bear Stearns failure and subsequent bailout, onto the very backs of the Republican party itself……

Michael Greenberger, in a voice that is a good mimic of Peter Coyote, the voice over in almost every campaign ad or television documentary, describes in plain language exactly what went down. He should know. For during the Clinton years…..(those golden years)…he served as Director of the Division of Trading and Markets at the Commodity Futures Trading Commission. In that capacity, he was responsible for supervising exchange traded futures and derivatives. He also served on the Steering Committee of the President’s Working Group on Financial Markets, and as a member of the International Organization of Securities Commissions’ Hedge Fund Task Force.. One can hear sadness in his voice as he describes, step by step, the dismantling of all the security devices which were once placed to insure what just happened, would never happen.

To understand what derivatives are and how they caused the current crises, one needs to understand that these OTC derivative markets are nothing more than “bets”. One bets that the housing market will continue to rise, or bets that it won’t, when buying into these plans. The underlying assumption being that the market would rise, so even if a homeowner were to default, his home would have increased its value more than enough to pay for the loan is what pushed this bubble farther than it would under its own power…….But if the markets fell, there was no bottom, since there was no underlying collateral to be gathered in its place. Once again we entered the realm of the 1920’s, where one could buy stock for 10% down. Back then we learned our lesson because of the Great Depression, and said “never again”. We regulated both the banks, and financial markets. And up until this administration, we regulated the OTC markets as well.

But then, late one December night, while America’s attention was fixed on the Supreme Court decision affecting the outcome of the 2000 election, a 262 page rider (Commodity Futures Modernization Act (“CFMA”)) was surreptitiously slipped into an 11,000 page Omnibus bill just as Congress was to leave on Christmas break, written in language that only a corporate lawyer could decipher, by one Senator Phil Gramm. (R-Tx). Not only did this rider wipe out all Federal oversight of this very speculative market, but it subsequently wiped out each and every state and local ordinance that up to that point, had regulated this commodity.

So started this shadow market. Instead of buying stocks and bonds, banks could place bets. The equivalent would be instead of buying a sports team, and investing in all the paraphernalia required that could subsequently pump money back into the economy, one could simply bet on them, and make much more money that way. Just as the sports betting economy, even though iit is huge, is totally below the economic radar, so was this market in dreivitives. There was no one overseeing it, thanks to Phil Graham.

As banks and major institutions began utilizing this new market, they came to the conclusion that they should place those very valuable assets on their books. So what is happening now, is nothing more than removing those questionable assets… the books. Since there was never any regulation, and since banks wanted to keep their financial pages attractive, there was no law that said losses had to be counted, and so they weren’t. Thus, even though this problem begin to turn sour years ago, no one except those whose position itself depended on their keeping that information quiet, even had a clue.

Basically what happened with Bear Stearns, was that one day, the bookie’s collector showed up at the door. “Uh…We’re here to collect.” Bear Stearns could hide it no longer.

Not all financiers fell like Bear Stearns. Some, like Goldman and Sachs to their credit, realized the housing market was about to deflate, and switched. They begin betting the other way; they bet the market would fall, and when it did, they weathered the financial storm better than most.

Essentially our great economy that has been hailed by the Bush administration as proving the wisdom of cutting taxes, has instead been driven by individuals huddled over their computers……staring at screens and making bets. Instead of building factories, extending the manufacturing base, driving new technologies, hiring and training real people, creating products that can be bought and sold, our economy is driven by a very few people…..making bets……
Our fortunes are being made…….or ruined… people making bets.

And this was accomplished by the sneaky tactic of one Republican, on the floor of the Senate in December of 2000., with no disclosure, no debate, and no reckoning.

That one person……Phil Graham (R-Tx) is currently serving as the Republican contender John McCain’s financial adviser. As we all know, John McCain by his own admission, does not know economics as well as he should. If he did, he most certainly would not have the single one person responsible for America’s economic fall from grace…… his most trusted senior adviser…….

The Republican party is entirely to blame for our current economic problems. They shoulder the blame alone for creating this shadow economy that may still yet……………………..destroy us all.