Reply #6: greed has been part of the human equation since apes stood up and could grab things with both hands.

[JohnWxy]

What made the difference and lead to this disaster was the REpublicans mantra of "DEREGULATION" - and the Commodities Futures Modernization Act.

"The Commodities Futures Modernization Act 2000" is what made trading in Credit Default Swaps legal AND COMPLETELY UNREGULATED. It is precisely because humans are greedy and some predictably will cheat (especially when there is a great deal of money to be made) that you must have regualtions to keep people from going crazy (and for example not keeping enough assets in reserve to back up the debt you are holding).

PHIL GRAMM was the major proponent of Deregulation of the Financial industry. He slipped the CFMA in as a rider to the Omnibus Spending bill 2000 - a 11,000 page document which was passed on the final day of the congressional session of 2000. Almost nobody even knew they were voting on this "Financial Bomb" hidden in the OSB. Gramm knew this was about the only way he could get this bill passed. On the last page of this law there is language specifically forbidding states from enforcing "anti-bucket shop" laws against banks trading in CDSs.

It was this law which set the stage for the abuses which produced the Credit Catastrophe 2008.

more on the CFMA:http://en.wikipedia.org/wiki/Commodity_Futures_Modernization_Act_of_2000
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The "Commodity Futures Modernization Act of 2000" (H.R. 5660) was introduced in the House on December 14, 2000 by Rep. Thomas W. Ewing (R-IL) and cosponsored by Rep. Thomas J. Bliley, Jr. (R-VA) Rep. Larry Combest (R-TX) Rep. John J. LaFalce (D-NY) Rep. Jim Leach (R-IA) and never debated in the House.<2>

The companion bill (S.3283) was introduced in the Senate on December 15, 2000 (The last day before Christmas holiday) by Sen. Richard Lugar (R-IN) and cosponsored by Sen. Peter Fitzgerald (R-IL) Sen. Phil Gramm (R-TX) Sen. Chuck Hagel (R-NE) Sen. Thomas Harkin (D-IA) Sen. Tim Johnson (D-SD) and never debated in the Senate.
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..... The bill was never debated by the House or Senate. The bill by-passed the substantive policy committees in both the House and the Senate so that there were neither hearings nor opportunities for recorded committee votes. In substance, it appears that the leadership of the Republican-controlled Senate and House incorporated the deregulation of credit default swaps into an omnibus budget bill (without hearings or recorded votes)at a time when the outgoing president was in no position to veto anything.
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Let there be no confusion here. The CFMA legalized Credit Default Swaps and prohibited any regulating of trading in them. This is what set the conditions, which many people feared would happen (that's why Gramm had to slip the bill through as a rider to a 'must-pass' funding bill).