In recent days, Sen. John McCain (R-AZ) has been promising to “put an end to the reckless conduct, corruption, and unbridled greed that have caused a crisis on Wall Street.” This is an interesting development for McCain, who before this week was a champion of deregulation.
It is doubly interesting though, because McCain voted for the bill that deregulated Wall St. and allowed such “reckless conduct” to occur in the first place. And one of the bill’s architects was McCain economic adviser, former Sen. Phil Gramm (R-TX).
In 1999, Congress passed the Gramm-Leach-Bliley Act, which abolished “all of the significant rules put in place at the time of the Great Depression designed to prevent a repeat.” Specifically, this act “destroyed the Depression-era barrier to the merger of stockbrokers, banks and insurance companies.”
Yesterday, a group of economists, including Nobel Prize winner Joseph Stiglitz, slammed Gramm for having a “mentality that doesn’t understand the nature of systemic risks in financial systems,” and said that his bill helped create the current financial turmoil:
Economic experts say that Gramm and others are to blame for the current crisis that is shaking Wall Street.
Gramm’s successful effort to pass banking reform laws in 1999, which reduced decades-old regulations separating banking, insurance and brokerage activities, helped to create the current economic crisis.
“As a result, the culture of investment banks was conveyed to commercial banks and everyone got involved in the high-risk gambling mentality. That mentality was core to the problem that we’re facing now,” Stiglitz says.
Lakshman Achuthan, managing director of the Economic Cycle Research Institute, said that “we were setting up this bonfire years ago — the deregulation, the inordinate amount of liquidity given to the system all set the stage for the bubble and the bust.”
So McCain is promising to put an end to the “reckless conduct” that he voted to allow, while being advised by a team that still believes rampant deregulation is the way to go.