Wednesday, October 15, 2008

Phil Gramm's law and the crash

Matt Taibbi lays it out here in a (rather one-sided but hilarious except for the subject matter) conversation with Byron York of the National Review. He lays a large fraction of the blame on a 262-page amendment, by John McCain's adviser Phil Gramm, to a 2000 law that opened the market for credit default swaps: he says the market ballooned from $900 billion then to $62 trillion in 2008 -- five times the value of the New York Stock Exchange, and all of it effectively a Ponzi scheme. He also answers criticisms, raised by York and previously by various people from pseudonymous bloggers (see reader comments here) to George Will, that defaulting home-loan takers were responsible for the crisis.


Abi said...

I discovered Matt Taibbi through his hilarious tear-down of Friedman's 'The World is Flat', and I have been his ardent fan since then.

Thanks for this link; it's great to see people like Byron York -- who oh so casually mouth racist stuff -- getting pwned like this.

Narasimhan said...

Dear Rahul,

I think Phil Gramm's bill to introduce this 226 page rider was to regulate the CDS markets, unless i heard it wrongly.

If you want to hear the full story, there is an amazing podcast by Adam Davidson and Alex Blumberg along with Ira Glass on This american life on NPR(where else).

This American Life

This along with their earlier program broadcast in May (you will find the link above) sort of explains everything in very clear terms about this various financial crisis.

With Regards