John McCain, Phil Gramm, and the US Financial Crisis

Paul Krugman picks up on the implications of McCain relying on Phil Gramm as an economic advisor. I’d rather see Gramm – the fiscal hawk – advising McCain on spending and tax policy than the free lunch hack named Art Laffer even if Gramm would balance the budget with spending cuts than tax increases. But it’s reform of the financial system that is at issue in Paul’s post. As Politico notes:

The general co-chairman of John McCain’s presidential campaign, former Sen. Phil Gramm (R-Texas), led the charge in 1999 to repeal a Depression-era banking regulation law that Democrat Barack Obama claimed on Thursday contributed significantly to today’s economic turmoil. “A regulatory structure set up for banks in the 1930s needed to change because the nature of business had changed,” the Illinois senator running for president said in a New York economic speech. “But by the time [it] was repealed in 1999, the $300 million lobbying effort that drove deregulation was more about facilitating mergers than creating an efficient regulatory framework.” Gramm’s role in the swift and dramatic recent restructuring of the nation’s investment houses and practices didn’t stop there. A year after the Gramm-Leach-Bliley Act repealed the old regulations, Swiss Bank UBS gobbled up brokerage house Paine Weber. Two years later, Gramm settled in as a vice chairman of UBS’s new investment banking arm.
Later, he became a major player in its government affairs operation. According to federal lobbying disclosure records, Gramm lobbied Congress, the Federal Reserve and Treasury Department about banking and mortgage issues in 2005 and 2006. During those years, the mortgage industry pressed Congress to roll back strong state rules that sought to stem the rise of predatory tactics used by lenders and brokers to place homeowners in high-cost mortgages. For his work, Gramm and two other lobbyists collected $750,000 in fees from UBS’s American subsidiary. In the past year, UBS has written down more then $18 billion in exposure to subprime loans and other risky securities and is considering cutting as many as 8,000 jobs.

Can you say crony capitalism? As Paul notes:

Seriously, 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.

Then again – McCain seems to listen more to Art Laffer than Phil Gramm on fiscal policy. Ahem!