“Some people look at subprime lending and see evil. I look at subprime lending and I see the American dream in action. My mother lived it as a result of a finance company making a mortgage loan that a bank would not make.”

-former United States senator Phil Gramm

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There was a fascinating front page Monday NYT article on the architect of much of the past few decades radical deregulation: Phil “nation of whiners” Gramm.

The retired Texas senator claims that deregulation “played virtually no role” in the current economic turmoil engulfing the globe, nor the housing collapse or the credit crisis. The exempting of any regulation of derivatives, including state insurance supervision, reserve requirements or clearing information was not significant to the crisis. The nonfeasance of the Fed in supervising all of the non-bank lenders that lay at the heart of the housing boom and bust was not the cause either (it was “Predatory Borrowing”). And the payola scandals at the ratings agencies — Moodies, S&P, and Fitch — that slapped triple AAA ratings on paper that turned out to be junk would not have been prevented via  better oversight.

Gramm said placing any blame on deregulation was simply “an emerging myth.”

I doubt you will come across a greater textbook example of cognitive dissonance, anywhere on the globe.

Here’s an excerpt:

In one remarkable stretch from 1999 to 2001, he pushed laws and promoted policies that he says unshackled businesses from needless restraints but his critics charge significantly contributed to the financial crisis that has rattled the nation.

He led the effort to block measures curtailing deceptive or predatory lending, which was just beginning to result in a jump in home foreclosures that would undermine the financial markets. He advanced legislation that fractured oversight of Wall Street while knocking down Depression-era barriers that restricted the rise and reach of financial conglomerates.

And he pushed through a provision that ensured virtually no regulation of the complex financial instruments known as derivatives, including credit swaps, contracts that would encourage risky investment practices at Wall Street’s most venerable institutions and spread the risks, like a virus, around the world…

But, until he left Capitol Hill in 2002 to work as an investment banker and lobbyist for UBS, a Swiss bank that has been hard hit by the market downturn, it was Mr. Gramm who most effectively took up the fight against more government intervention in the markets . . .

But looser regulation played virtually no role, he argued, saying that is simply an emerging myth.

Much of the deregulatory push he made received some bipartisan approval. The 1999 and 2000 legislation was signed by the Bill Clinton, in the midst of his impeachment scandal.

Given what has happened, Gramm is now in favor of “modest regulatory changes” — including requiring issuers of credit-default swaps to demonstrate that they have enough capital to back up their pledges.

As to everything else?

“They are saying there was 15 years of massive deregulation and that’s what caused the problem,” Mr. Gramm said of his critics. “I just don’t see any evidence of it.”

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Source:
A Deregulator Looks Back, Unswayed
ERIC LIPTON and STEPHEN LABATON
NYT, November 16, 2008

http://www.nytimes.com/2008/11/17/business/economy/17gramm.html

Category: Bailouts, Credit, Derivatives, Legal, Politics

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

27 Responses to “Phil Gramm: A Deregulator Unswayed”

  1. Archiphage says:

    Too bad a decent word like ‘deregulated’ has been so abused. It should mean ‘left the heck alone’ but now it just means ‘differently misregulated’.

  2. Vermont Trader says:

    No, the problem is greed. Deregulation just pulls the refs off the field.

    I think Elliot Spitzer’s editorial is much better and worth reading. I think his focus on corporate management and shareholders is right on.
    http://www.washingtonpost.com/wp-dyn/content/article/2008/11/13/AR2008111303634_pf.html

  3. Archiphage says:

    I couldn’t get past the very first sentence, which signaled that there would be no rational content in the remaining words. Spitzer is out of jail already? I wish I’d been born one of those ‘ruling class’ versions of man. Those guys get all the breaks. (And all the chicks!)

    ~~~
    BR: In the US, Johns typically are not prosecuted.

  4. VennData says:

    …. and his wife Wendy Gramm had nothing to do with the collapse of Enron even though she was on the board and even though she had to pay off the shareholder lawsuits she lost.

    The Gramms, America’s first family of finance – alliteration of “F,” how appropriate for these two PhDs.

  5. constantnormal says:

    The Swiss put corrupt bankers in prison, just for extraordinarily bad operational performance (at least that is the story pitched in Paul Erdman’s The Billion Dollar Sure Thing). We can pray.

  6. SWMOD52 says:

    I bought my first home (a condo in downtown Chicago) 20 years ago …. FOR ABOUT A 2% DOWN PAYMENT on a 30 fixed loan. I don’t remember the details but these condos were part of some kind of FHA backstop. I paid PMI and everything worked out fine.

    ~~~
    BR: Did they check your credit rating? Debt service ability? Income? LTV?

    That’s what was missing from the circa 2002-2006 sub-prime lending, courtesy of lend-to-securitize financing . . .

  7. Concerned American says:

    The Republicans used to be the party you could count on to do the right thing. They took that trust and used it to screw us worst than any one person or group of people had ever been able to do so in the past. What I can’t believe is how many Republicans don’t get it and allow these idiots a pass. They actually blame the current situation of the Democrats.

    Signed a former life long Republican, but never again!!

  8. peachin says:

    Phil Gramm and Larry Kudlow should be sent to Russia to help them develop their Economic Policies.

    BTW: In all this mess and interesting thing is happening in Business Broadcasting. Bloomberg is changing their whole package – better, tighter, better people – better guests – you name it – they are doing it. They will some day (and for me know) be/are the People to go to for the best programming in the industry. If I were GE I would sell CNBC at this very moment to get the maximum value while the package looks good, but the internal organs are rotting – network cancer.

  9. grumpyoldvet says:

    Listening to CNBS this AM and they were reporting from Yorba Linda, CA regarding the fires there. Kernan said he actually lived there for a while. Now I fully understand his mendacity as Yorba Linda is where Nixon (that pargon of virtue) is from.

    Gotta agree with “peachin” as Bloomberg does have a better show. CNBS does it’s part for comic relief for me in the AM.

  10. grumpyoldvet says:

    Forgot to add…….it must be in the water, air, dirt or something in Yorba Linda…….

  11. Namazu says:

    What’s fascinating is that a long article containing a quote fingering Phil Gramm as the person most responsible for the crisis nowhere mentions monetary policy in general or Alan Greenspan in particular. Also interesting is the universal insistence on quoting Gramm out of context: the “whiners” quote was clearly a reference to the financial press. It’s hard to defend his role in the CDS debacle, but it shouldn’t be hard to provide adequate context.

  12. Gene says:

    That’s his story and he’s stickin’ to it, by golly!

  13. catman says:

    Speaking of Bloomberg I’ve caught Pimm Fox after the close a few times and the guy is really good.

  14. wisedup says:

    what Bush is to MBA so Gramm is to PhD

  15. larster says:

    Texas’ version of Ted Stevens. Good riddance to both.

  16. bonghiteric says:

    Taking Stock – Pimm Fox on Bloomberg 5PM every day. TIVO it and watch it after dinner. No need for any other business news

  17. leoeris says:

    Something is very very wrong when IDIOTS get elected to office over and over again. If this man is a PhD, it is clear proof that education in this country is HOSED.

  18. leoeris says:

    Hey, that is a good idea, send the free market fundamentalists to our enemies countries! We would only have to pay their salaries to completely weaken enemy economies!

  19. tedstevens says:

    poor regulation is not the same as deregulation…what we [Americans] have been operating under is a system of poor regulation which should be properly labeled as the cause for this…NOT deregulation.

    political spinsters make me sick.

    that said…if there were no fed, no fiat currency, no bailouts, no bad regulation…imagine the possibilities.

  20. Winston Munn says:

    There are stateman:

    “Economic growth without social progress lets the great majority of the people remain in poverty, while a privleged few reap the benefits of rising abundance.” – John Kennedy

    And then there are Phil Grams…

  21. Ethel-to-Tilly says:

    You should be a little more careful of historical accuracy – both the 1999 and 2000 bills were passed by Congress and signed by Clinton well after the impeachment – not “in the midst of the impeachment scandal” as you assert.

    The impeachment trial was early 1999 – the Senate vote was in February – after that it was pretty much a dead issue. The Gramm-Leach-Bliley Act was passed by Congress and signed by Clinton in November 1999 – well after the “impeachment scandal”.

    The Commodities Futures Modernization Act was not introduced until Dec 14, 2000, in a lame duck session of Congress, the day before recess ,and was included as part of a 21,000 page omnibus budget bill and never debated in either house of Congress – it was signed by Clinton on Dec 21, 2000 – also well after the “impeachment scandal”.

    The fact that Gramm engineered such a wide-ranging and potentially destructive bill on the last day of Congress, and tucked it neatly inside a huge thumbs-up or thumbs-down budget bill where it would never be considered or addressed on it’s merits says a whole lot about the Republican way of government. The fact that Gramm is proud of and unapologetic as to his achievements says a whole lot about Gramm as a person.

  22. ReturnFreeRisk says:

    Ideology pushed too far is bad. Any ideology. That is what Greenspan did. And that is what Phil Gramm seems to be guilty of. People like them will NEVER own up. And the recognition is important. Without recognition of past mistakes, we will never fix the problem.

    With Fed funds rate (effective) now around 20-30bps, we have effectively cut rates to zero and are sowing the seeds of the next bubble or inflation (think massive moral hazard inducing bailouts AND monetary inflation).

  23. Winston Munn says:

    This is your brain:

    “There are those who look at things the way they are, and ask why… I dream of things that never were, and ask why not?” – Bobby Kennedy

    This is your brain on Ideology:

    “Some people look at subprime lending and see evil. I look at subprime lending and I see the American dream in action.” – Phil Gramm

    Any questions?

  24. MikeG says:

    Spitzer is out of jail already? I wish I’d been born one of those ‘ruling class’ versions of man.

    WhyTF should Spitzer be in jail? I’m no big fan of his, but he used his own money to purchase a consensual service that many, many politicians use, the only difference being he got caught by an investigation that was likely politically-motivated (the Bush Justice Department running politically-motivated revenge investigations? Unthinkable. Just ask Don Siegelman).

    The ethical issues are between him and his wife. Why waste taxpayers money putting him in jail? We have the largest prison population on earth, at immense financial and social cost, because of this kind of puritan lock-em-all-up mentality.

    The bigger question is why personal indiscretions of the Clinton/Spitzer variety excite such punitive outrage, while the massive crimes of the Bush insiders are ignored.

  25. Archiphage says:

    MikeG:
    I don’t disagree with you, and especially not about the current group of villains in the so-called Justice Department, nor anywhere in DC for that matter. I was just taking an admittedly cheap shot at someone I despise. I wasn’t making a serious argument that anyone -even grandstanding hypocrites- should be kidnapped and tortured using extorted funds for the non-crime of paying a woman for sex.
    Actually, I’m getting a nice little chuckle at myself nearly getting called a Puritan, of all things. Thanks for that… I needed it, because I’m about to get stopped out of the Aussie dollar a-freakin’-gain!

  26. auden5 says:

    Gramm is correct in his general principles. Overall, deregulation allows poorer people better access to credit, which may allow them to rise up to the middle class. His point is that while Wells Fargo wouldn’t have loaned his mother money to buy a house, she was able to do so through a less regulated money lender. Such outfits can work well–just look at the unconventional, unregulated microfinance lenders–or not so-well–Countrywide. But logically, if microfinance customers do well without regulation and microfinance lenders do well by targeting poor people, then deregulation is not the problem per se. That’s all Gramm is trying to say. Where he fails is by not pointing out that less regulated lenders deserved a small niche in the economy and instead became the whole pie, courtesy of the rating agencies. The unethical rating agencies who put lipstick on the debt pigs were the main culprits that allowed everyone else’s excesses to trickle down to Main Street. Once again, that’s not a direct consequence of financial deregulation–that’s a direct consequence of a lack of ethics. More here:

    http://willworkforjustice.blogspot.com/2008/09/ocm-other-countries-money.html

  27. oilshock05 says:

    Barry,

    Could you list all the laws & regulations that were repealed? Also, the deregulation implies that the do nothing congress didn’t pass any new laws and regulations over the last several years. Could you prove it? Could you post some stats on the number of federal, state and local government jobs that were eliminated due to the deregulation, because these positions were deemed unnecessary. Please post some stats on the number of lawyers unemployed due to lack of laws that could be used to sue other people. Also, don’t forget to post the cut in real spending at the federal level over the last few years, that can be attributed to the deregulation. Finally, if you could post some stats on the reduction in the number of pages from various law books as laws were eliminated.

    Thanks,