Republic, Lost_ How Money Corrupts Congress--And a Plan to Stop It - Lawrence Lessig [31]
As this market in derivatives was growing, however, there was a constant question about whether and how derivatives would be regulated. With that question came a fight. One side of that battle thought that derivatives should be treated no differently from any other asset. The other side saw this as a chance to launch a project to deregulate financial assets generally.
The war for deregulation was waged by a (somewhat crude) libertarian, Mark C. Brickell. Though the nation had just suffered a derivatives-based financial crisis,9 Brickell, a lobbyist for the derivatives industry, pushed the idea that the best response to the crisis was general policy to dismantle the New Deal regulations—not just with derivatives, but with every financial instrument within the economy.
Most thought Brickell’s idea insane, and his campaign, hopeless. Nations reregulate financial services after a collapse; they don’t deregulate. Nonetheless, Brickell pushed, and got his first true victory in January 1993, when “departing [Commodity Futures Trading Commission] chair Wendy Gramm delivered her ‘farewell gift’ to the derivatives industry, signing an order exempting most over-the-counter derivatives from federal regulation. (A few months later, she would receive her own farewell gift, being named a director of Enron, which was an active trader of natural gas and electricity derivatives.)”10
Victory at the CFTC, however, was just the first step. There were a handful of important pieces of legislation working their ways through Congress that would have heavily regulated derivatives. Brickell, as Gillian Tett describes it, “was relentless, and as the weeks passed, against expectations, his campaign turned the tide.”11 For Brickell got a completely unexpected gift in his campaign to deregulate derivatives: a new president, neither crude, nor libertarian, but a key ally nonetheless, Bill Clinton.
Clinton had campaigned with a strong strain of populist rhetoric. Wall Street was fearful that populism would translate into substantial regulation. Once in office, however, Clinton was eager to convince Wall Street that despite the rhetoric, he was no anti–Wall Street populist. His administration worked quickly to signal that he could love Wall Street as completely as the Republicans did. Almost seamlessly, as historian Kevin Phillips writes, “well-connected Democratic financiers stepped easily into the alligator loafers of departing Republicans.”12 By the end of 1994, and with tacit support by the administration, Brickell’s campaign had killed all four of the antiderivatives bills in Congress.13 And the campaign was not just legislative: the core agency charged with overseeing this industry, the SEC, was told by members of Congress to lay off. (When SEC chairman Arthur Levitt tried to introduce tougher conflict-of-interest rules for the accounting industry, Senator Phil Gramm, Senate Banking chair, “threatened to cut the SEC’s budget.”)14 Finally, in 1999, President Clinton gave the industry its most important gift: he signed the law that abolished the Glass-Steagall Act,15 thereby confirming the deregulation already effected by bank regulators. “[R]egulators essentially left the abuses of the 1990s to what Justice Cardozo had called the ‘morals of the marketplace.’ ”16 “Self-policing,” as Tett put it, when describing an antiderivatives bill in 1994, had “won the day.”17
This was not the only victory for the deregulation