BANK REFORM ANATHEMA TO McCAIN

by Alexander Cockburn

Last Monday morning, amid the financial rubble of the weekend disasters, John McCain said he thought the economy was fundamentally sound. Hours later, maybe after a phone call from the Palins, he changed his mind. The man who wants less government now wants a government enquiry. He doesn't know what's wrong, but he's bothered.

It would take the pen of Swift to depict a scene more ludicrous than the recent Republican convention, featuring thunderous denunciations of big government a few hours before Treasury Secretary Henry Paulson rushed to bail out Fannie Mae and Freddie Mac in the largest nationalization in history, privatizing the profits and nationalizing the losses, sticking the taxpayers with a $300 billion tab. On Tuesday, AIG got the same treatment.

Even Swift could not depict the brazen effrontery of McCain offering himself as the foe of the special interests when his prime, albeit technically unofficial economic adviser is former senator Phil Gramm. In 1999, John McCain's friend and now his closest economic counselor, then a senator from Texas, pushed through the Gramm-Leach-Bliley Act. It repealed the old Glass-Steagall Act, passed in the Great Depression, which prohibited a commercial bank from being in the investment and insurance business. President Bill Clinton cheerfully signed it into law. A year later, Gramm, chairman of the Senate Banking Committee, attached a 262-page amendment to an omnibus appropriations bill, voted on by Congress right before a recess. The amendment received no scrutiny and duly became the Commodity Futures Modernization Act, which OKed deregulation of investment banks, exempting most over the counter derivatives, credit derivatives, credit defaults, and swaps from regulatory scrutiny. Thus were born the scams that produced the debacle of Enron, a company on whose board sat Gramm's wife, Wendy. She had served on the Commodity Futures Trading Commission from 1983 to 1993 and devised many of the rules coded into law by her husband in 2000.

Somewhat stained by the Enron debacle, Gramm quit the Senate in 2002 and began to enjoy the fruits of his own deregulatory efforts. He became a vice chairman of the giant Swiss bank UBS's new investment arm in the United States, lobbying Congress, the Federal Reserve and the Treasury Department about banking and mortgage issues in 2005 and 2006, urging Congress to roll back strong state rules trying to crimp the predatory tactics of the subprime mortgage industry. UBS took a bath of about $20 billion in write offs from bad real estate loans this year.

Acknowledged for years as one of the most mean-spirited men ever to reach Congress, utterly charmless, (he managed to win only eight delegates in a hugely expensive bid for the Republican nomination in 1996), Gramm kept close contacts with the man dubbed McNasty when he was at the Naval College in Annapolis. Aside from their affinities in viciousness of character, Gramm had access to big campaign funders in Texas, necessary from McCain's 2008 bid. He became McCain's campaign chairman and chief economic advisor.

Gramm is Exhibit A in any list of the architects of the current economic mess. At the behest of the banking industry, he wrote the laws that enabled the huge balloons of funny money debt that exploded this year. His deregulatory statutes prompted Wall Street's looting orgy in the subprime thievery.

After Gramm declared that America was suffering merely a "mental recession" and was becoming "a nation of whiners," McCain had to reposition him as an unofficial economic adviser, but he still remains close to the candidate and has even been touted as a possible Treasury secretary in a McCain administration. If McCain does win and picks someone else for that job, then maybe he'll chair the commission charged with figuring out what went wrong.