John McCain and "Foreclosure Phil" Gramm
David Corn has more on John McCain's "economic brain," the lobbyist and deregulation crusader Sen. Phil Gramm.
As a senator, Gramm reshaped finance law at the behest of Enron:
It didn't quite work out that way. For starters, the legislation contained a provision—lobbied for by Enron, a generous contributor to Gramm—that exempted energy trading from regulatory oversight, allowing Enron to run rampant, wreck the California electricity market, and cost consumers billions before it collapsed. (For Gramm, Enron was a family affair. Eight years earlier, his wife, Wendy Gramm, as cftc chairwoman, had pushed through a rule excluding Enron's energy futures contracts from government oversight. Wendy later joined the Houston-based company's board, and in the following years her Enron salary and stock income brought between $915,000 and $1.8 million into the Gramm household.) [MotherJones]
Gramm also rewrote the law to allow the big banks to conduct trillions upon trillions of dollars worth of credit default swaps without federal oversight:
But the Enron loophole was small potatoes compared to the devastation that unregulated swaps would unleash. Credit default swaps are essentially insurance policies covering the losses on securities in the event of a default. Financial institutions buy them to protect themselves if an investment they hold goes south. It's like bookies trading bets, with banks and hedge funds gambling on whether an investment (say, a pile of subprime mortgages bundled into a security) will succeed or fail. Because of the swap-related provisions of Gramm's bill—which were supported by Fed chairman Alan Greenspan and Treasury secretary Larry Summers—a $62 trillion market (nearly four times the size of the entire US stock market) remained utterly unregulated, meaning no one made sure the banks and hedge funds had the assets to cover the losses they guaranteed. [MotherJones]
The ensuing speculative free-for-all ushered in the subprime mortgage crisis.
Gramm is one of John McCain's closest advisers. Until April 18, Gramm was a registered lobbyist for the Swiss bank UBS--one of the major players in the subprime fiasco.
Corn notes that UBS recently wrote down $37 billion in debts because of the mortgage crisis.
There's speculation that Gramm's shortlisted to be Secretary of the Treasury if McCain becomes president. What a maverick!