Pennsylvania’s Republican Senate nominee Pat Toomey has been unrepentant about his role in deregulating derivatives, the complex financial instruments that helped bring about the financial crisis of 2008, and which Toomey himself traded. While in House of Representatives, Toomey voted for the Commodity Futures Modernization Act — a bill sponsored by Phil “Mental Recession” Gramm that outlawed government oversight of the over-the-counter derivatives market — and has said he would vote for it again if given the chance.
“That bill did absolutely nothing to cause the financial crisis, and no credible person has tried to make that argument,” Toomey said.
Of course, several credible people — including Nobel Prize winner Joseph Stiglitz — have highlighted the destruction wrought by derivatives. Billionaire investor Warren Buffett has referred to them as “financial weapons of mass destruction.” And as a revealing piece by Mother Jones’ Nick Baumann shows, Toomey has tried to downplay the extent to which the instruments he traded and then exempted from oversight have hurt American communities:
During the campaign, Toomey has referred to the products he worked with as “non-risky” “common derivatives,” different from the “toxic” mortgage-backed derivatives that some believe caused the financial crisis…In Pennsylvania alone, 107 school districts reportedly entered into swap deals—”gambling with the public’s money,” according to the state’s auditor general. Some have since paid millions of dollars to Wall Street banks to get out from under the deals. Chicago, Denver, Kansas City, Missouri, Philadelphia, Massachusetts, New Jersey, New York, and Oregon all recently lost money on similar swap deals.
One Pennsylvania school has had to pay $12.3 million to disentangle itself from a swap deal with J.P. Morgan. The Denver public schools system has paid millions of dollars more in fees on a swap deal than it anticipated, and the only way to escape is an $81 million termination fee. And Matt Taibbi ably demonstrated how Jefferson County, Alabama, was fleeced by swap deals as it tried to finance a new sewer system.
Now, Toomey himself did not have anything to do with these deals, or with the credit default swaps that sunk some of Wall Street’s behemoths, necessitating a slew of federal rescues. But he doesn’t seem to have any comprehension of the damage that Wall Street has wrought by wielding these instruments without regulatory oversight.
This is going to be a critical issue in the next few years, as regulators implement the Dodd-Frank financial regulatory reform bill, and already House Republicans are looking at ways to defund some of the enhanced regulations. Would Toomey hop on board with those efforts, since he seems to feel what Wall Street’s deregulation caused no harm?