Today, Phil “mental recession” Gramm has an op-ed in the Wall Street Journal disputing the notion that the deregulation he promoted while in the Senate had anything to do with the financial crisis. Gramm — the poster child for a movement defending deregulation and blaming Clinton-era housing programs for the meltdown — relied on a series of tired conservative tropes in an attempt to exonerate himself from well deserved culpability.
Gramm: It was the Community Reinvestment Act!
No it was not. Only six percent of the subprime loans made by CRA-covered lenders went “to lower-income borrowers or neighborhoods.” It was non-bank mortgage companies — not covered by CRA — that originated 50 percent of subprime loans.
Gramm: Fannie and Freddie encouraged the poor people!
This is a favorite of the right, but Fannie and Freddie “had nothing to do with the explosion of high-risk lending.” The two undeniably fueled the securitization fire, but it was their chief regulator — the Office of Federal Housing Enterprise Oversight — that utterly failed to prevent them from investing in toxic mortgages, while the Bush administration appointed supervisors who made it clear that they planned to deliver less supervision over the financial services industry.
Gramm: Credit default swaps are fine!
No, they’re not. In his finest moment, Gramm shielded swaps from regulatory oversight by slipping a rule into an unrelated budget bill in 2000. The unregulated swap market reached a peak of $62 trillion. Taking advantage of this, AIG issued over $40 billion in swaps that it couldn’t honor, necessitating a government rescue.
The rescue of AIG and the collapse into bankruptcy of Lehman Brothers are the two defining moments of the current financial market meltdown, and Gramm’s fingerprints are all over both. Incidentally, Gramm is not through messing with the banking system. Just yesterday, the bank that he helps run, UBS, was sued by the American government for helping American clients “use secret accounts to evade U.S. taxes.” Old habits evidently die hard.