CBS’ 60 Minutes did a pretty fine job explaining the underpinning of the financial crisis now hitting Wall Street. It explained the “side bets” that were allowed into law in 2000.
Think of it for a moment as a football game. Every week, the New York Giants take the field with hopes of getting back to the Super Bowl. If they do, they will get more money and glory for the team and its owners. They have a direct investment in the game. But the people in the stands may also have a financial stake in the ouctome, in the form of a bet with a friend or a bookie.
“We could call that a derivative. It’s a side bet. We don’t own the teams. But we have a bet based on the outcome. And a lot of derivatives are bets based on the outcome of games of a sort. Not football games, but games in the markets,” Partnoy explains.
The show focused on a vote in Congress in 2000 to remove credit derivatives — credit default swaps — from regulations. It’s the The Commodity Futures Modernation Act of 2000. On the last vote, on the last day, of the 106th Congress in 2000, the Senate passed the bill — unanimously — removing the derivatives from a law regulating gambling.
Here’s what 60 Minutes didn’t say. The bill in the Senate (S.3283) and the companion bill in the House (H.R. 5660). The combined bill was put into an omnibus budget bill without ever being examined in committee.
Every Minnesota representative — except Rep. Jim Oberstar, who didn’t vote — voted for the final bill. At the time, they were Gil Gutknecht (R), David Minge (D), Martin Sabo( D), Bill Luther (D) and Collin Peterson (D). Rep. Bruce Vento died several months before the vote. (See the full House vote)
But the Senate passed the bill on a voice vote, so no record was kept of the individual senators’ positions. In an earlier vote on the bill, however, both Sen. Rod Grams and Sen. Paul Wellstone voted against it.
All in all, however, it was a bipartisan failure of good government.