McCain guru linked to subprime crisis
McCain guru linked to subprime crisis
Lisa Lerer 2 hours, 41 minutes ago
The general co-chairman of John McCains 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 todays economic
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[it] was repealed in 1999, the $300 million lobbying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
Gramms role in the swift and dramatic recent
restructuring of the nations investment houses and
practices didnt 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A year after the Gramm-Leach-Bliley Act repealed the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 UBSs new investment banking
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
For his work, Gramm and two other lobbyists collected
$750,000 in fees from UBSs 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
Gramm did not respond to an e-mail, and was
unavailable for comment, according to a UBS spokesman.
The bank has no official position on the subprime
crisis, the spokesman said, but is a member of the
Financial Services Roundtable and other industry
groups that are actively lobbying Congress on the
Now, some housing experts and economists see Gramms
thinking in the recent housing proposal from McCain,
the Republican Partys presumed presidential nominee.
Gramm is often a surrogate for the Arizona senator,
particularly in meetings focused on the economy. And
McCain has hinted hed consider the former Texas
senator for Treasury secretary in a McCain
McCain delievered an economic speech Tuesday that had
Gramm's input, but it was written by domestic policy
adviser Douglas Holtz-Eakin.
Sen. Gramm was one of dozens of folks who Sen. McCain
has consulted on the housing issue, including Carly
Fiorina and Meg Whitman from eBay," said McCain
campaign spokesman Brian Rogers. "They've been friends
for years and he values Sen. Gramm's advice."
In the speech, McCain rejected the type of aggressive
government intervention in the economic meltdown that
has been embraced by his Democratic opponents and
even some Bush advisers.
I have always been committed to the principle that it
is not the duty of government to bail out and reward
those who act irresponsibly, whether they are big
banks or small borrowers, McCain said. Government
assistance to the banking system should be based
solely on preventing systemic risk that would endanger
the entire financial system and the economy.
McCains campaign later clarified that he would
support programs for deserving homeowners and
reforms that would improve transparency and
accountability in capital markets.
Andrew Jakabovics, a housing expert at the liberal
Center for American Progress, said McCains
interpretation of the crisis puts little blame on
investment banks for their role in packaging the
subprime loans into dangerously complex and ultimately
hard to value financial instruments.
Id characterized this as the deux ex machine theory
of financial products, Jakabovics said. He views
this as a market problem that manifests at the local
level as housing, meaning hes more likely to argue in
favor these guys when they argue for deregulation.
Wall Street firms are increasingly under scrutiny for
contributing to the economic downturn by packaging and
selling risky mortgage securities. When the home loans
tied to the mortgages defaulted, investors and the
banks lost billions, contributing to a widespread
I think [McCains] attitude is the market can
basically handle this and government doesnt need to
be heavily involved, said David Wyss, chief economist
at Standard and Poors.
McCain and Gramm have a long political history. The
two became close when they worked together as senators
to defeat Hillary Rodham Clintons 1993 health care
plan, holding meetings at hospitals and clinics across
In 1996, McCain was national chairman of Gramm's
unsuccessful presidential bid.
In 2000, the duo had a rare parting when Gramm backed
his home-state governor, George W. Bush, for president
instead of McCain. But theyve reunited in this
Gramm stood by his former Senate colleague in his
worst days last summer when his campaign went broke
and his candidacy was all but written off by political
Gramm, who had joined the campaign in March as a
domestic policy adviser, was among those who helped
cut staff and shrink the budgets. He traveled with
McCain in Iowa, New Hampshire and South Carolina and
stumped for him in Georgia.
Staff writer Victoria McGrane contributed to this