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!