Tuesday, September 16, 2008

John McCain and Phil Gramm - A Match Made in Hell

I think we will start hearing more of this in the media soon:
...[W]hile Obama seeks financial advice from Warren Buffett and respected economists, McCain relies primarily on his long-time friend Phil Gramm, who deserves much of the blame for the nation’s present economic problems.

Concern with Gramm-McCain economics may explain why three former SEC chairmen, appointed variously by Reagan, Clinton, and George W. Bush, took the unprecedented step of jointly endorsing a candidate for the Presidential race: Barack Obama, whom they praised for his “reasoned approach” to “the current financial crisis and the need for balanced regulatory reform.” Other Obama backers are Paul Volcker, ex-Federal Reserve head, and Vanguard founder John Bogle, who said “We need some regulation! . . . I’m a Theodore Roosevelt Republican, and the party has abandoned me.”

McCain has admitted that “the issue of economics is not something I’ve understood as well as I should,” a shortcoming made more worrisome by the swarm of lobbyist-advisors surrounding him. Of these, Phil Gramm, whom McCain has called his “economic guru,” has influenced him most; under his tutelage McCain put together an economic policy that Fortune magazine called “vintage Gramm.”

Until Gramm mortified McCain by belittling America as “a nation of whiners” and the present economic downturn as a merely “mental recession” he co-chaired McCain’s campaign and was considered to be his likely pick for Treasury secretary. Although public reaction to Gramm’s gaffe required his swift removal as co-chair of McCain’s campaign, he has reportedly returned as an informal advisor and may yet get the Treasury post.

Throughout his career Gramm worked to weaken or remove regulations that allowed the government to keep an eye on big business. As chair of the Senate banking committee in the 1990s he routinely rejected SEC requests for more money to police Wall Street, while investigators’ work loads increased by 80%. “Competition and freedom” not government “are the answers,” he said in 1999 after signing a bill he coauthored that scrapped protections enacted in 1933 to ensure that the bank failures the country had recently experienced would never be repeated.

In December 2000, Gramm furtively slipped his own 262-page bill, titled the Commodity Futures Modernization Act, into an 11,000-page appropriations bill.

Written with the assistance of financial industry lobbyists, read by few legislators, and passed without hearings by a lame-duck Congress racing to finish before recess, Gramm’s bill prevented the SEC and the Commodity Futures Trading Commission (CFTC) from regulating most over-the-counter derivatives, credit derivatives, and swaps, trading instruments that Warren Buffet called “financial weapons of mass destruction.”


But a far more expensive result of Gramm’s bill was the creation of a shadow banking system, a $62 trillion unregulated market managed by banks and hedge funds no longer required to have enough assets to cover potential losses. The results have been catastrophic: mortgages that “adjusted” far beyond home-buyers’ ability to pay, bundled together by banks and finance companies and resold as bonds and new jumbo securities to other banks, pension funds, and private investors and leading to bankruptcies and immense losses in the financial and housing markets that spread throughout the economy here and abroad with no end in sight. The same banks and investment companies that paid Gramm millions to free them from government regulation are now asking the government, using our money, to bail them out.


Given Phil Gramm’s record, voters are faced with the following questions: even if McCain swears to cut all ties with Gramm, how can we entrust the Presidency to a man who condones the ruthless character and unscrupulous practices of his longtime friend? And how can we give such great responsibility to someone advised by a man whose deregulation of the energy and financial markets released a Pandora’s box of evils upon the nation, harming not only the general public but even many of the corporations he served?

If we don't hear more about Gramm and McCain's reliance on him to craft his economic policy, Obama isn't doing his job. This is very relevant to current events, and a very important issue in the election debate.

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