McCain’s call for regulatory reform rings hollow

In light of the failures of Freddie Mac, Fannie Mae, Bear Sterns, Merrill Lynch, and now Lehman Brothers (1), both McCain and Obama announced today that they would reform regulatory oversight of the financial industry (2).

McCain’s pronouncements, however, ring hollow. As I’ve already posted on this blog, the deregulation that has directly contributed to the current financial meltdown and speculation-driven rise in oil prices was the brainchild of former senator Phil Gramm (3). This is the same man that McCain tapped to chair his campaign and write his economic plan. This is the same man that had to step down from McCain’s campaign for proclaiming that America has become a nation of whiners and that we were experiencing a “mental recession.” This is the same man who, when told that a proposal under consideration would hurt 80-year-old retirees, replied, “Most people don’t have the luxury of living to be 80 years old, so it’s hard for me to feel sorry for them.” This is the same man who wrote laws benefitting Enron at the same time that his wife served as one of its directors. (4)

That McCain has declared he doesn’t really understand economics should give you pause. That he would put the fate of our economy in the hands of Phil Gram, should make you outraged.

The question that remains is, is the fact that he would align with Gramm a symptom of poor character or poor decision making ability? In light of the smear fest that he has waged against Obama, one which Karl Rove himself said had gone “one step too far”(5), I tend to believe it is a reflection of his character.

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Following are excerpts from “John McCain’s Gamble”(4):

"In the early evening of Friday, December 15, 2000, with Christmas break only hours away, the U.S. Senate rushed to pass an essential, 11,000-page government reauthorization bill. In what one legal textbook would later call 'a stunning departure from normal legislative practice,' the Senate tacked on a complex, 262-page amendment at the urging of Texas Sen. Phil Gramm."

"Financial wizard Warren Buffett has labeled the risky new investment instruments Gramm unleashed 'financial weapons of mass destruction.'"

"Gramm created what Wall Street analysts now refer to as the 'shadow banking system,' an industry that operates outside any government oversight, but, as witnessed by the Bear Stearns debacle, requiring rescue by taxpayers to avert a national economic catastrophe."

"That Gramm is now advising the Republican nominee for president on economic matters 'shouldn’t give people a lot of comfort,' says University of Maryland law professor Michael Greenberger, a senior official at the Commodity Futures Trading Commission in the late 1990s. 'Gramm has been a central player in two major economic crises -- the credit crisis and the incredibly high price of energy. ... He’s got his fingerprints all over legislative efforts that led to this.'"

"The impact of the 'Enron loophole' has been enormous. Since its passage, the Senate Permanent Subcommittee on Investigations has concluded that the loophole contributed to inflated energy prices for American consumers. In 2006, its report found credible expert estimates that the loophole--by encouraging speculation--accounted for $20 of the price of a barrel of oil, then at $70. In 2007, the same committee blamed the loophole for excessive speculation by hedge fund Amaranth Advisors that led to the distortion of the natural gas market."

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(1) http://money.cnn.com/2008/09/15/news/companies/lehman_brothers/index.htm?postversion=2008091515
(2) http://www.cnn.com/2008/POLITICS/09/15/wall.street.candidates/index.html
(3) http://jsj-election08.blogspot.com/2008/09/democrats-on-energy-rebuttal.html
(4) http://www.texasobserver.org/article.php?aid=2767
(5) http://www.cnn.com/2008/POLITICS/09/14/campaign.wrap/index.html
http://www.huffingtonpost.com/2008/01/21/short-on-economic-underst_n_82529.html
http://www.opinionjournal.com/editorial/feature.html?id=110007600