Lex Luthor was Superman’s arch nemisis, an evil genius who sought to take over the world by wreaking havoc on the Earth.
Mark Sumner has written a well-documented analysis of how the Federal government has brought the U.S. to this financial crisis. Three Times is Enemy Action tells a 25 year story of governmental deregulation that led to the Savings & Loan crisis of the late 1980s, the Enron-created rolling blackouts in California in 2000 and 2001, and today’s destruction of the U.S. mortgage market and near collapse of Wall Street. The one constant in all of this? Phil Gramm, the former senator from Texas.
Bringing California to its knees by forcing it to buy energy at astronomical prices and undermining the foundation of Wall Street and the U.S. housing market seem like classic storylines for a super villian like Lex Luthor. So, is Phil Gramm an evil genius? More pertinent is that Phil Gramm is now John McCain’s chief economic advisor. Not surprisingly, McCain voted for all the legislation mentioned in the article. Sumner’s article is on Daily Kos. Oviously, it is written to put McCain in the worst possible light.
Since, this is a business blog, not a political blog, I will not dwell on McCain, and let you come to your own conclusions on that.
More important to ETF investors is that Sumner explains in detail how credit default swaps work. This is relevant to the conversation because equity swaps, a cousin of credit swaps, are the main asset held by the ProShares short ETFs which came under serious duress on Friday.
The two take-aways here are this article explains in detail the Congressional actions that led us to this financial disaster. I have not been able to find a piece anywhere else in the financial news media that has been able to adequately tie together all the pieces of how we got here.
Second, Sumner presents us with the possibility that Congress getting involved again will only bring more trouble. Will this new government bailout truly help the small investors on Wall Street or will we see more scary days on Wall Street in the coming weeks?