Late last week, The Politico dropped a bomb on John McCain, reporting that the co-chairman of his presidential campaign, former Sen. Phil Gramm (R-TX), led the charge in 1999 to repeal a Depression-era banking regulation known as the Glass-Stegall Act. The act was intended to prevent certain types of investments from being securitized and many have argued that the 1999 repeal paved the way for the current subprime mortgage crisis.
After leaving Congress, Gramm became a federal lobbyist for the investment banking arm of Swiss Bank UBS and, in 2005 and 2006, caused even more damage:
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 mortgages.
For his work, Gramm and two other lobbyists collected $750,000 in fees from UBS’s American subsidiary. In the past year, UBS has written down more than $18 billion in exposure to subprime loans and other risky securities and is considering cutting as many as 8,000 jobs.
Not surprisingly, McCain's plan to address the subprime crisis has Gramm's stamp all over it. Here's Paul Krugman:
I was even more struck by Mr. McCain’s declaration that “our financial market approach should include encouraging increased capital in financial institutions by removing regulatory, accounting and tax impediments to raising capital.”
These days, even free-market enthusiasts are talking about increased regulation of securities firms now that the Fed has shown that it will rush to their rescue if they get into trouble. But Mr. McCain is selling the same old snake oil, claiming that deregulation and tax cuts cure all ills.
Considering that McCain has hinted he’d consider Gramm for Secretary of the Treasury if elected, these ties are a major cause for concern. But the fun doesn't stop there.
(More after the jump ...)
Via the New York Daily News:
John Green, the senator's chief liaison to Congress, and Wayne Berman, his national finance co-chairman, billed more than $720,000 in lobbying fees from 2005 through last year to Ameriquest Mortgage through their lobbying firm, disclosure forms reviewed by the Daily News show.
Ameriquest, which since has been bought out, was forced to settle suits with 49 states for $325 million. More than 13,680 New York homeowners got taken for a ride by the company, records show.
"They would be defined as the most blatant and aggressive predatory lenders out of everybody," said Bruce Marks, head of the nonprofit Neighborhood Assistance Corporation of America.
Sadly, McCain isn't the only presidential candidate who keeps close company with folks implicated in the subprime meltdown:
Maggie Williams the new campaign manager for Sen. Hillary Clinton, earned about $200,000 on the board of a Long Island, N.Y., subprime lender that charged prepayment penalties — a practice that Clinton, as a candidate and critic of the subprime industry, now seeks to eliminate.
Williams, who took over the reins of Clinton’s campaign in early February, served as a director on the board of the Woodbury, N.Y.-based Delta Financial Corp. from April 2000 until the firm declared bankruptcy in December last year, according to Securities and Exchange Commission records.
The LA Times also notes that Henry Cisneros, Bill Clinton's former secretary of housing and urban development and a campaign ally, grossed more than $5 million in stock sales and board compensation from Countrywide Financial (NYSE:CFC) , one of the nation's largest subprime lenders. And while Clinton's housing plan is far better than the joke promulgated by McCain, it's troubling that she can't rid her campaign of these questionable associations.
Obama, meanwhile, isn't entirely immune to criticism on this front; the Clinton campaign contends that he has received $1.18 million in contributions from subprime lenders. They also argue that his housing plan doesn't do enough to aid the victims of the mortgage bust. But there's no evidence that any of his senior aides have ties to the subprime industry. Furthermore, according to Robert Kuttner, the Illinois senator is more willing to challenge the roots of the mortgage crisis, a necessary step if we're serious about preventing the next collapse. From Kuttner's analysis of Obama's economic speech last week:
First, he connected all the dots -- between the complete dismantling of financial regulation, the declining economic opportunity and security for ordinary people, the current financial meltdown, and the political influence of Wall Street as the driver of these changes. Astounding! I wish I had written the speech. It is this kind of leadership and truth-telling that is the predicate for the shift in public opinion required to produce legislative change. A radical, appropriately nuanced, and deeply public-minded description of what has occurred, the speech was Roosevelt quality: the president as teacher-in-chief.
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