
Remember the good ol’ days (like, just over a week ago), when the big campaign news was about “lipstick on a pig”? Now that Wall St. had its massive heart attack, and the Feds put on the $700,000,000,000 ($700 billion) defibrillators, the campaigns are back where they should be–on issues.
Over the past few days there’s been a lot of finger pointing, with Dems blaming Repubs and vice versa. Truth is, of course, there’s plenty of blame to go around. And both candidates are calling for greater regulation, as deregulation and reckless lending and investing on Wall St. is accepted as the primary cause for this crisis.
So who could have seen this nightmare coming? Well, Warren Buffett for one. Buffett, currently the world’s richest man, the man Forbes magazine calls “America’s most beloved investor,” saw the potential for this back in December, 2000 when Congress passed a bill that Buffett called at the time “a financial weapon of mass destruction.”
It’s important to learn how we got to this current mess, to learn the players, and to learn the roles they play with Sen. McCain and Sen. Obama. After all, as the adage goes, “Those who don’t learn from history are doomed to repeat it.” I was hoping to find a clear, concise article to link to that would explain what I’ve learned in my reading over the past few days. So far I haven’t found one. So instead I’ll share with you some of what I’ve found, with trackback links so you can read the sources for yourself if you like. I know it’s long, but I hope it’s interesting. As always, I appreciate your reading.
Along the way you’ll see who McCain calls his “economic guru” (and why that’s scary) and who some of the top economic people are, both Republican and Democrat, including Buffett, who endorsed Obama for President way back in the spring.
The main player to know in order to understand John McCain and his economic philosophy is former Senator Phil Gramm (R-Texas). McCain and Gramm have a long political and personal relationship, and the two became close when they worked together as Senators to defeat Hillary Clinton’s 1993 health care plan. One of the most staunch proponents of deregulation in U.S. history, Gramm has been McCain’s longtime economic adviser (both in official and unofficial capacities) and McCain has referred to him as his “economic guru.” In February of this year Fortune magazine called McCain’s economic policies “vintage Gramm.” Gramm was originally the general co-chairman and chief economic adviser of the McCain campaign, but had to step away in July–at least officially. More about that later.
1980s. The infamous Savings & Loan scandal during which 747 S&Ls collapsed during the Reagan administration. The S&Ls lobbied hard for increased deregulation, got it, and invested heavily in junk bonds and questionable real estate projects, leading to the collapse. The most reckless of all the S&L types was Charles Keating, who was convicted of felony fraud, racketeering, and conspiracy. Along the way, Keating donated heavily to five U.S. Senators who aided his cause towards deregulation and, as the scandal hit, they were dubbed the “Keating Five” and came under intense scrutiny. McCain was one of the Keating Five but, as one article notes, “wasn’t found guilty of anything but bad judgment.”
1996. Sen. John McCain, along with only 4 other Senators, voted against a comprehensive reform of the telecommunications industry saying it didn’t provide “enough deregulation.” Fortunately, the bill overwhelming failed.
1996. Sen. Gramm runs unsuccessfully for the Republican nomination for President; hires McCain as the national chairman of his campaign.
1999. Gramm co-authors the Gramm-Leach-Bliley Act which removed regulations put in place in 1933 during the Great Depression. The regulations were designed to keep banking, investment companies and insurance companies from dipping into each other’s fields. According to economists, the resulting interaction is source of much of the current trouble.
2000. The bill that Buffett called a “financial weapon of mass destruction.” In December, 2000 the Bush-Gore election was still being decided by the Supreme Court as a result of the election-day craziness in Florida (remember “hanging chads,” Katherine Harris, Gov. Jeb Bush, etc.?) Just before Congress was set to break for recess, a 262-page bill called the “Commodities Futures Modernization Act” was slipped into a must-pass 11,000+ page appropriations bill just before Congressional recess. It passed without hearings, created a “shadow banking system,” and created what came to be known as “the Enron Exemption,” (Gramm’s wife, Wendy, was on the board of directors for Enron). The bill allowed companies like AIG and Lehman Brothers to take on enormous sums in bad loans and investments. As an editorial in the Gainesville Sun said this week, “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.”
2002. Gramm retires from the U.S. Senate to become a vice chairman and lobbyist for Swiss bank UBS.
2005/2006. On behalf of UBS Gramm lobbies Congress, the Federal Reserve and Treasury Department about banking and mortgage issues. The goal–to roll back rules implemented to fight predatory tactics that were being used by lenders and brokers to place homeowners in high-cost mortgages.
Feb., 2006. Barack Obama proposes, along with Sen. Dick Durbin (D-Illinois) a bill in the Senate to (S.1222) “combat mortgage fraud, ratcheting up enforcement and creating a national database of brokers who have been disciplined.” He writes the bill in consultation with the Treasury Department.
2007. McCain hires Gramm to be the general co-chairman and chief economic adviser of his presidential campaign. In March, 2008 Paul Krugman of the NY Times notes, “the Gramm connection tells you all you need to know about where a McCain administration would stand on financial issues: squarely against any significant reform.”
March, 2007. Obama sends a letter to Federal Reserve Chairman Bernanke and Treasury Secretary Paulson urging them to “immediately convene a homeownership preservation summit with key stakeholders to fight foreclosures driven by growth in the subprime mortgage market.” He says, “We cannot sit on the sidelines while increasing numbers of American families face the risk of losing their homes” and suggests six specific points to be addressed in the summit.
December, 2007. McCain tells reporters in New Hampshire, “The issue of economics is not something I’ve understood as well as I should. I’ve got Greenspan’s book.”
January, 2008. Former Federal Reserve Chairman Paul Volcker, during the height of the primary season, endorses Obama. He says in his statement, “After 30 years in government, serving under five Presidents of both parties and chairing two non-partisan commissions on the Public Service, I have been reluctant to engage in political campaigns. The time has come to overcome that reluctance. However, it is not the current turmoil in markets or the economic uncertainties that have impelled my decision. Rather, it is the breadth and depth of challenges that face our nation at home and abroad. Those challenges demand a new leadership and a fresh approach. It is only Barack Obama, in his person, in his ideas, in his ability to understand and to articulate both our needs and our hopes that provide the potential for strong and fresh leadership. That leadership must begin here in America but it can also restore needed confidence in our vision, our strength, and our purposes right around the world.”
March, 2008. In an interview with the editorial board of the Wall Street Journal McCain says, “I’m always for less regulation.” In fairness he adds the he does see the need for government oversight, but concludes, “I’d like to see a lot of the unnecessary government regulations eliminated.”
March 26, 2008. Obama gives a major economic address in front of a “Wall St. crowd” at Cooper Union in New York. The speech has received more attention now than it did back then because much of what Obama said is turning out to be true–unfortunately. The video and full transcript are easily available online but highlights include, “We let the special interests put their thumbs on the economic scales. The result has been a distorted market that creates bubbles instead of steady, sustainable growth, a market that favors Wall Street over Main Street but ends up hurting both. When all is said and done, losses will be in the many hundreds of billions.” In the address Obama outlined six principles that he said, “should guide the legal reforms needed to establish a 21st century regulatory system.”
March 26, 2008. On the same day as Obama’s Cooper Union speech McCain delivers a speech saying that the appropriate response to the mortgage crisis is…further deregulation. The speech is written with help from Phil Gramm who, at the same time, is still lobbying on behalf of UBS. David Wyss, chief economist at Standard and Poor’s, says, “I think [McCain’s] attitude is the market can basically handle this and government doesn’t need to be heavily involved.”
May, 2008. Three Former Chairmen of the U.S. Securities and Exchange Commission (SEC) officially endorse Obama, joining Paul Volcker and one of the most highly respected men on Wall St., John Bogle, founder of Vanguard Funds. The former SEC chairs William Donaldson (appointed by G.W. Bush), Arthur Levitt (Clinton) and David Ruder (Reagan) issued a joint statement saying, “Each of us has been committed to prudent economic policy and effective financial regulation for many years. We believe Senator Obama can provide the positive leadership and judgment needed to take us to a stronger and more secure economic future.” They go on to praise Obama’s “reasoned approach” to “the current financial crisis and the need for balanced regulatory reform.” It’s interesting (and almost chilling, in hindsight) that in the May 18 Reuters article about the endorsement it says, “On Tuesday, he (Obama) compared conditions during the Great Depression to the current U.S. housing crisis, blaming both in part on poor financial regulation. He has promised better regulation of mortgage lenders and other financial institutions.”
July, 2008. In an interview with the Washington Times, Phil Gramm is asked if he thinks America is in a recession. He says, “You’ve heard of mental depression; this is a mental recession. We have sort of become a nation of whiners. You just hear this constant whining, complaining about a loss of competitiveness, America in decline.” As a result of the gaffe (in other words, saying out loud what you really mean but is really horrifying to the millions who are in deep financial trouble or who realize the severity of the problem), Gramm steps down from his official role in the McCain campaign, though he is widely reported to still act in an unofficial role as economic adviser and has recently resumed attending McCain events.
September 15, 2008. Two Wall Street giants, Lehman Brothers and Merrill Lynch, collapse. Alan Greenspan calls it “the worst economy I’ve ever seen” and warns of more failures of banks and investment companies. At 11:15 in Florida McCain says in a speech, “The fundamentals of the economy are strong.” The media, the Democrats, aliens from outer space–everyone goes crazy in reaction to the comment, yelling one giant, “What???” Two hours later, after “it” hits the fan, McCain says what he really meant to say is “the American workers and their innovation, their entrepreneurship, the small business” are strong. Oh. Okay.
September 18, 2008. An angry McCain says to a crowd about Christopher Cox, chairman of the SEC, “If I were President today, I would fire him.”
September 19, 2008. The editors of the super conservative Wall Street Journal pounce on McCain for his comment saying, “this assault on Mr. Cox is both false and deeply unfair. It’s also un-Presidential.” They call McCain’s speech “a tirade,” and saying he used “wholly unsupported assertions.” The column concludes, “In a crisis, voters want steady, calm leadership, not easy, misleading answers that will do nothing to help. Mr. McCain is sounding like a candidate searching for a political foil rather than a genuine solution.
September 19, 2008. Obama meets with his economic advisers and holds a press conference and Q&A to address the financial situation. In the press conference he says, “This is not a time for fear, it’s not a time for panic. This is a time for resolve and it is a time for leadership.” He said he would call for a Homeowner and Financial Support Act “that would establish a more stable and permanent solution than the daily improvisations that have characterized policy-making over the past year.” He said his measures would provide capital to the financial system, insure liquidity to allow the financial markets to function and “get serious about helping struggling families to restructure their mortgages on affordable terms so they can stay in their homes.”
September 21, 2008. On ABC’s Sunday news program “This Week With George Stephanopoulos” the panel pulls no punches about McCain’s reactions. Even conservative George Will said, “I suppose the McCain campaign’s hope is that when there’s a big crisis, people will go for age and experience. The question is, who in this crisis looked more presidential, calm and un-flustered? It wasn’t John McCain who, as usual, substituting vehemence for coherence, said ‘let’s fire somebody.’ And picked one of the most experienced and conservative people in the administration, Chris Cox, and for no apparent reason… It was un-presidential behavior by a presidential candidate.” He then concluded with what many Republican and Democratic colleagues have expressed concern about for quite awhile–McCain’s tendency towards rash judgement: “John McCain showed his personality this week, and made some of us fearful.”
In summary: Those who think the economy is going well should vote for McCain, a man who has always supported the policies, and the architects like Gramm, who have brought the economy to where it is today. Those who think the economy is in fundamental trouble should vote for Obama, the man who the former SEC chairs, former Federal Reserve Chair Paul Volcker, Warren Buffett and others have praised for his approach to the economy, including his years of calling for “reasonable regulation.”
So, that’s what I’ve learned. I’d be curious to know what you think, if this was helpful, interesting, boring, etc. So let me know if you can.
Thanks for reading!
Jonathan
Now, here are the trackbacks on this entry:
http://www.gainesville.com/article/20080915/NEWS/809150221/-1/opinion&title=John_Ward__John_McCain_and_Phil_Gramm
http://online.wsj.com/article/SB122178318884054675.html?mod=todays_us_opinion
http://seattlepi.nwsource.com/opinion/379476_teepenonline18.html
http://news.yahoo.com/s/thenation/20080917/cm_thenation/45361590
http://krugman.blogs.nytimes.com/2008/03/29/the-gramm-connection/
http://firstread.msnbc.msn.com/archive/2008/09/15/1401952.aspx
http://seattlepi.nwsource.com/opinion/379476_teepenonline18.html
http://www.politico.com/news/stories/0308/9246.html
http://blogs.wsj.com/washwire/2008/01/31/volcker-joins-list-of-obama-backers/
http://www.reuters.com/articlePrint?articleId=USN1448591420080514
http://en.wikipedia.org/wiki/Phil_Gramm
http://en.wikipedia.org/wiki/Charles_Keating