Gramm Smasher

2 comments June 4th, 2008at 07:17am Posted by Eli

Texas Observer explains how McCain’s economic adviser is personally responsible for the mess our economy is in today.  My favorite parts:

That Gramm is now advising the Republican nominee for president on economic matters “shouldn’t give people a lot of comfort,” says University of Maryland law professor Michael Greenberger, a senior official at the Commodity Futures Trading Commission in the late 1990s. “Gramm has been a central player in two major economic crises—the credit crisis and the incredibly high price of energy. … He’s got his fingerprints all over legislative efforts that led to this.”

(…)

His critics say that Gramm’s anti-regulatory rhetoric failed the bulk of his constituents—which included thousands of hapless Enron employees who lost their life savings—but lavishly rewarded a few wealthy pals, like Ken Lay. University of Texas economist James Galbraith says Gramm is “not against government at all. His career has been finding ways to make money for his friends. It’s a predator relationship. [Government] is his food supply.

(…)

When his new party won control of the Senate, Gramm rose to chairman of the Senate Banking Committee, where he was able to put his anti-regulation views into law. The Gramm-Leach-Bliley Act of 1999 repealed laws put in place after the Great Depression setting up protective barriers between commercial banks, investment banking firms, and insurance companies.

Consumer groups strenuously opposed the landmark legislation. “It was strongly deregulatory and … did not address safety and soundness,” says lobbyist Ed Mierzwinski of the public interest group U.S. PIRG.

(…)

Banks had been chipping away at the barriers through Federal Reserve rules for decades. But Gramm’s sweeping deregulation “stripped away restraint,” says Broome.

While Gramm denies any link between the current subprime mortgage crisis and his legislative efforts, Mierzwinski, Broome, and even some Wall Street analysts trace a direct connection.

Michael Panzner, a Wall Street veteran and author of Financial Armageddon, says the massive deregulation encouraged “aggressive, swashbuckling, high-risk practices that might have been frowned upon in the banking industry, but which were viewed as typical, say, on Wall Street.” Eventually, those practices “became the modus operandi throughout the financial services industry.”

Panzner also believes that Gramm-Leach-Bliley “may have even set the stage for both the collapse and the subsequent ‘rescue’ of Bear Stearns by the Federal Reserve.” The deregulated financial services industries were “encouraged to push the envelope in terms of risk-taking, and were not entirely dissuaded from thinking that the public purse would be available if things went horribly wrong.”

Still others blame Gramm’s Commodity Futures Modernization Act. Prior to its passage, they say, banks underwrote mortgages and were responsible for the risks involved. Now, through the use of credit default swaps—which in theory insure the banks against bad debts—those risks are passed along to insurance companies and other investors.

Maryland law professor Greenberger believes credit default swaps “were a key factor in encouraging lenders to feel they could make loans without knowing the risks or whether the loan would be paid back. The Commodity Futures Modernization Act freed them of federal oversight.”

I especially like how the economists can’t agree on which piece of awful Gramm is responsible for the subprime meltdown.  And this is the guy who could be McCain’s Secretary Of The Treasury.

What could possibly go wrong?

Entry Filed under: Economy,Elections,McCain,Politics,Republicans,Wankers

2 Comments

  • 1. Cujo359  |  June 4th, 2008 at 1:59 pm

    It’s astounding that it only took nine years from the passage of the GLB Act before our credit sector was in free fall. I suppose it was a cumulative effect of many bad decisions.

    I’m always a bit skeptical of economists’ explanations for things, particularly when someone’s going against conventional wisdom. There seems to be no doubt, though, that the lack of a sound regulatory environment, and lack of a sound fiscal policy on the part of the Federal government, has led to problems in the credit market.

    There’s a reason the laws Gramm repealed or gutted were there. We’re certainly not any smarter than our grandparents when it comes to things like greed and short-sightedness. I guess maybe this little social experiment has proved that.

  • 2. Eli  |  June 4th, 2008 at 10:14 pm

    Yeah, I think I’m willing to go along with the economists on this one. Regulations are usually there for a reason, and removing them has a tendency to prove that…


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