From Consortium News:
John McCain has been purging lobbyists from his campaign trying to reclaim the mantle of political reformer, but there’s one lobbyist whose role as a key economic adviser makes him almost untouchable despite ties to the sub-prime debacle, links to the Enron disaster and alleged evasion of ethics rules.
Former Sen. Phil Gramm, who was listed as a lobbyist for banking giant UBS as recently as December 2007, has emerged as what Fortune magazine calls “McCain’s econ brain,” filling McCain’s acknowledged void on economic expertise (“I don’t know as much about the economy as I should”).
Recognized as one of McCain’s closest friends in politics, Gramm began advising McCain in 2005 when the Arizona senator indicated he planned to run for President. Gramm, a Texas Republican, also was credited with helping salvage McCain’s campaign from disarray in 2007.
More recently, McCain reportedly turned to Gramm for help in fashioning a March 26, 2008, policy speech on the mortgage crisis – a plan that critics faulted for providing only modest help for families facing foreclosures.
Now, however, Gramm’s work for the Swiss-based investment bank UBS is coming under scrutiny as contradicting McCain’s policy that bars lobbyists from his campaign.
“Much like its competitors in the brokerage industry, [UBS] is most interested in preventing Congress from passing legislation that would restrict the industry,” an unnamed lobbyist told Wall Street Letter. “The firms want to make sure they don’t get hit with another version of Sarbanes-Oxley,” the tougher corporate disclosure law passed after the Enron collapse.
In 2002, Gramm, whose wife Wendy served on Enron’s board of directors, had opposed Sarbanes-Oxley, which was designed to hold executives accountable for inaccuracies in financial reports like those that hid Enron’s mounting debt.
The Wall Street Letter also quoted a former Securities and Exchange Commission official as saying that UBS’s goal in tapping Gramm was “to establish a sustained, long-term effort to cultivate influence in the nation’s capital by contributing money to candidates on a consistent basis.”
In mid-2003, Gramm began floating a UBS-backed idea of raising money for the $95 billion Texas Teacher Retirement System through the purchase of retirees’ life insurance policies and the sale of billions of dollars in bonds.
Gramm met with Texas Gov. Rick Perry, Insurance Commissioner Jose Montemayor and state pension officials to discuss the proposal, which Gramm claimed could add as much as $500 million to teachers’ pension funds risk free, according to documents.
Texas Democrats derided the UBS proposal after a review determined that UBS stood to profit far more than the Teachers Retirement System if the plan were implemented.
Furthermore, Democrats found that Gramm’s PAC had donated $612,000 to Gov. Perry during the 2002 election cycle.
On another front, UBS is currently under investigation by William Galvin, Massachusetts’ secretary of the commonwealth.
Galvin subpoenaed UBS and Bear Stearns after one of its analysts issued a research report that upgraded the stock of New Century Financial, a company that provides sub-prime mortgages to low-income homebuyers, from “underperform” to “peer-perform.”
The stock spiked on the news. But less than two months later New Century filed for bankruptcy protection due in large part to the massive number of borrowers who were defaulting on their loans.
It turned out that UBS and Bear Stearns, which recently was spared bankruptcy by a federal bailout and an arranged sale to JPMorgan Chase, financed New Century’s mortgage operations.
Galvin alleged that Bear Stearns and UBS violated a 2003 settlement barring self-interested stock research, an agreement that followed the Nasdaq crash of 2000.
There’s still more baggage that comes with Gramm’s connection to the McCain campaign, especially as it tries to reestablish McCain’s reputation as a maverick opposed to the corrupt ways of Washington.
As chairman of the Senate Banking Committee in 1999, Gramm pushed through legislation undoing the Depression-era Glass-Steagall Act by eliminating the wall between heavily regulated commercial banks and lightly regulated investment banks.
Some economists blame this deregulation for contributing to the rapid growth in sub-prime mortgage lending, its securitization into investment bundles and thus the recent crisis in the mortgage markets that has pushed the U.S. economy to the brink of a major recession.
From The Texas Observer:
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.
“The work of this Congress will be seen as a watershed where we turned away from an outmoded Depression-era approach to financial regulation and adopted a framework that will position our financial services industry to be world leaders into the new century,” Gramm said.
Watershed indeed. With the U.S. economy now battered by a tsunami of mortgage foreclosures, the $30-billion Bear Stearns Companies bailout and spiking food and energy prices, many congressional leaders and Wall Street analysts are questioning the wisdom of the radical deregulation launched by Gramm’s legislative package. Financial wizard Warren Buffett has labeled the risky new investment instruments Gramm unleashed “financial weapons of mass destruction.”
Gramm serves as co-chair of the McCain 2008 presidential campaign. As one of the candidate’s chief economic advisers, he is mentioned as a possible secretary of the treasury in a McCain administration. Their friendship was forged in the Senate as they worked against the Clinton health care proposal, and cemented when McCain served as national chairman of Gramm’s own (ill-fated) 1996 presidential bid.
In Gramm, McCain has chosen for a campaign adviser a former senator who espouses free market, conservative principles, but whose actions in public office served wealthy contributors and even himself. Exhibit A: Gramm’s cozy Enron Corp. connections. Not only did CEO Ken Lay chair Gramm’s 1992 re-election campaign, but Gramm’s wife, Wendy, earned $50,000 a year as an Enron director from 1993 to 2001 (not counting perks that included stock options). Meanwhile Gramm pushed the company’s aggressive—and ultimately self-defeating—political agenda to escape government scrutiny.
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.”
Kids, there is much, much more in both articles, and I recommend you read them both.
P.S. Check out who the female lead was on the original DVD cover! 😆