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The House That Gramm Built
Posted on Jul 14, 2008
By Marie Cocco
The big trouble roiling the financial markets and the impending federal bailout of mortgage giants Fannie Mae and Freddie Mac offer voters the sort of incomprehensible mess they hope the next president will make more orderly and less costly to taxpayers. Not a chance.
The seeds of the meltdown were sown over decades, and there is no way to avoid reaping the harvest now. The public may not trust John McCain to fix things—he famously admitted once that he doesn’t know much about the economy. But Barack Obama offers an economic résumé at least as thin, having spent only short time in the Senate before running for president.
Of all people, the person we should be paying attention to is Phil Gramm. The former Texas senator, a close friend and campaign adviser to McCain, made a fair mess of things politically last week when he declared that the state of the economy really isn’t so bad. It’s just that Americans are in a “mental recession,” and we’ve become a “nation of whiners” with unceasing complaints.
Why should we listen to this guy’s poppycock? Because Gramm is the embodiment of the economic philosophies and misguided policies—embraced by Republicans and far too often by Democrats—that have gotten us precisely where we are today.
He has espoused, promoted and written into law economic policies based on the simplistic arguments that cutting taxes and deregulating huge industries (especially the financial industry) are the keys to making magical markets work. And if this turns out to be voodoo, the blame is to be shifted either to big-spending Democrats or to the great mass of American “whiners.”
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But Gramm has been much more than that. He was the congressional godfather of Reaganism, the man who—initially as a Democrat—wrote the first Reagan budget and persuaded conservative Democrats to provide the crucial bloc of votes necessary for its passage. In case you’ve forgotten, that first effort cut just about everything, including Social Security.
Later in his career, as a Republican, Gramm authored the legislation that is widely fingered as one of the culprits in creating both the Enron debacle and the broader financial crisis that plagues us now. His handiwork included the legislation that dismantled the Depression-era walls that separated the financial activities of commercial banks, investment banks and the insurance industry. He also slipped the infamous “Enron loophole” into law, allowing energy futures to be traded without federal oversight. Various investigations of the Enron collapse have pointed to this loophole as crucial to the manipulation of the California energy market by Enron, which provoked an energy crisis in the state in 2000 and 2001.
What could Gramm do for an encore?
For one thing, he continues to promote tax cuts as the economic idea that stands above all others. In an April interview with U.S. News & World Report, for example, he credited tax cuts exclusively with Ireland’s recent economic success and said that “nobody has ever” achieved prosperity through government spending. Of course, Gramm conveniently ignored Ireland’s cradle-to-grave social safety net, which includes a national health care system as well as a state-supported college education for those who qualify.
For another, he is a vice chairman of international banking giant UBS. He has raised millions in political donations from the very financial companies he helped deregulate, and whose rapacious conduct helped bring on the crisis we confront, and will apparently pay for, today.
So don’t dwell too much on Gramm’s silly gaffe about mentally distraught whiners. Campaign “surrogates” often talk out of turn or, rather, they say what’s really on their minds and not in their talking points. Obama confronted a similar situation during the Democratic primaries, when he ousted a foreign policy adviser for calling Hillary Clinton “a monster.”
The trouble with Gramm isn’t what he says. It’s that he has had McCain’s ear—and has laid claim to ours—for far too long.
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