Pinning blame on crisis

Go back a decade or so, with the creation of those exotic financial products that helped big-time investors skirt existing rules. The NYT's Floyd Norris points to the Phil and Wendy Gramm as especially culpable.

It was Wendy Gramm, as chairwoman of the Commodity Futures Trading Commission in the early 1990s, who championed keeping her agency out of derivative trading. It was Phil Gramm, as the chairman of the Senate Banking Committee, who pushed through legislation in 2000 to assure that no future C.F.T.C., let alone any other regulator, would have jurisdiction over such products. At the same time that the credit-default swap market was growing, so were hedge funds, which became behemoths that were largely exempt from any regulation.

In case you forgot, Phil Gramm is the McCain economic advisor who earlier this year pooh-poohed the economic troubles, calling the U.S. "a nation of whiners." But don't get caught in singling out only the Gramms – there’s plenty of blame to go around. If you’re looking for a root cause, try bogus computer modeling, which was the basis for bum securities getting top-grade classifications. This modeling, Norris writes, was "used the past to forecast the future, and did so with complete, and completely unjustified, assurance."

It was that faith that led rating agencies to give top-grade classification to securities that were in fact very risky and led investors to buy them. It was that faith that led regulators to defer to the banks’ own risk models in determining how much capital they needed. It was that faith that led senior managements of Wall Street firms — many of whom had only a general understanding of what their traders were doing — to assume that risk was under control when it was not.

Here's a link to the draft of the rescue package. Republican Sen. Judd Gregg expects the House to vote on Monday and he hoped the Senate would too. But because of the Jewish holiday, the Senate vote might have to wait until Wednesday. In any event, this does seem to be a done deal.