An Economy Based on Bets

Michael Greenberger on
Fresh Air:

Should we have an economy based on whether people make good or bad bets - or should we have an economy where people build companies, create manufacturing interests, do inventions, advance the American society, make it more productive? This economy is based on people sitting at their computers making bets all day long... We are rewarding people for sitting at their computers and punching in bets. That's not the way this economy is going to be built. India and China, with their focus on science and industry and building real businesses, are going to eat our lunch unless the American public wakes up and puts an end to an economy that praises and makes heroes out of speculators.

Greenberger explains how a huge financial market called the "shadow" or "dark" market is really a sophisticated betting operation, dealing in "complex derivatives." This shadow market is larger than the more familiar stock-and-bond market by about 50%, and consists of private one-to-one transactions that are not printed in the newspaper or regulated in any way. Credit for the facilitating the enormous growth in the U.S. shadow market goes to Phil Gramm - who is now John McCain's economic advisor.

In December 2000, Gramm, then Chair of Senate Finance Committee, introduced the Commodity Futures Modernization Act (CFTA) as a rider to one of the Omnibus appropriation bills. It deregulated entirely the market in complex derivatives, not only at the Federal, but mostly at the state level as well. This made possible the current financial fiascos that have taken down many homeowners, as well as Bear Stearns, giving a whole new meaning to "betting the rent." John McCain not only does not understand much about economics - he apparently doesn't learn very quickly. He had an upfront seat for the Savings and Loan disaster of the 1980s. That bailout cost American taxpayers money we could have used to fix Social Security, or develop renewable energy. With Phil Gramm at his side, is he going to stop the wave of financial interests gambling with other people's money - namely, ours?