Read a Pacific Northwest, liberal perspective on world, national, and local politics. From majestic Redmond, Washington - the Northwest Progressive Institute Advocate.

Tuesday, September 16, 2008

The man who broke the economy

At the end of the Clinton years, we had a pretty good economy.

Anybody remember that?

We had low unemployment and a billions of dollars of budget surplus.

Anybody remember what a surplus is?

Oh, yeah. And we had appropriate regulation of financial markets.

Reg-u-what-tions? Come again?

You know, regulations. Rules and stuff for what banks and credit agencies could and could not do. Rules designed to keep them from--not to put too fine a point on it--destroying themselves with rampant greed and taking the rest of us down with them.

But then Phil Gramm came along. For years the favorite son of the financial service lobbyists, in 1999 and 2000 Gramm carried water for two bills designed to change all that. Bills designed to unlock the gates of greed so the bankers and brokers could run head-long into world of untold profit. (And untold risk, but hey, who's counting?)

This 1999 bill opened the doors for commercial banks to get into investment banking. The 2000 bill created the "credit default swap" instrument, which allowed those banks to create new investments built out of packages of risky loans and sell them to one another.

The banks promptly did, and 8 short years later there was a 45 TRILLION dollar market for these credit default swaps, dwarfing by ten times the size of the legitimate U.S. Treasuries market.

But then after eight years of packaging up bad loans, selling them, dividing them back up, re-packaging, re-selling, trading, swapping, and shuffling until nobody really understood who owned what, the "invisible hand of the market" finally realized "hey, giant house of cards has no blueprint and is built atop a major fault zone on a foundation of bad loans!" The financial sector, understandably, panicked. Wouldn't you panic if you realized you were holding 45 trillion dollars worth of junk that nobody was going to buy anymore?

And the whole thing started to tumble down.

Rarely in history has there been a case where responsibility for the collapse of an incredibly complex system involving the participation of literally thousands and thousands of players can be placed into the hands of one man.

But in this case it can. Responsibility falls squarely upon Phil Gramm, legislative drug mule for the financial lobbyists, co-sponsor and architect of the two bills that let the banking sector go on this eight-year bender of credit default swap insanity.

Phil Gramm. The man who broke the economy.

Phil Gramm. The man John McCain has tapped to be his chief economic advisor.

Does anyone--anyone!--need any further evidence of McCain's unsound judgment? Of his unfitness to lead the nation in these incredibly trying times? No wonder John McCain doesn't understand the economy as well as he should. With advisors like that, how on earth could he?

Comments:

Blogger Ken Camp said...

Awww, we're just a bunch of whiners engaged in a recession of the mind, or so says Phil Gramm.

September 16, 2008 7:38 PM  
Blogger ed hutchison said...

this article is correct. gramm was bad news.

March 6, 2009 7:44 PM  

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