Phil Gramm was behind the Enron Loophole that removed regulation over internet energy trading which gave rise to higher oil prices.
Phil Gramm was also behind the Gramm-Leach-Bliley Act that removed Depression-era regulation over the financial services industry and helped cause the financial services crisis we have today. Thanks Phil Gramm!
Here are more details:
We all know that Phil Gramm was behind the so-called Enron loop-hole: legislation that exempts most over-the-counter energy trades and trading on electronic energy commodity markets from government regulation. It has been widely reported that the Enron loop-hole has been the cause of rising oil prices, artificially inflating prices beyond that which is caused by pure supply and demand due to energy trading activity.
I would like to focus on another little piece of legislation that I haven't seen discussed very much here on dailykos: The Gramm-Leach-Bliley Act of 1999.
You see, after much lobbying from the financial services sector, the Gramm-Leach-Bliley Act was sponsored by three Republican Senators by the names of Phil Gramm, James Leach and Thomas Bliley. It repealled the Glass-Steagall Act, which had been in place for over 60 years and regulated the banking industry.
The Glass-Steagall Act was enacted in 1933. Does that year ring any bells? Think - The Great Depression. After the bank collapses of the Great Depression and the stock market collapse of 1929, the Glass-Steagall Act was enacted to prevent banks from enagaging in investment banking activities and speculation. The Glass-Steagall Act was intended to eliminate the conflicts of interest inherent in granting credit, lending and advising on stocks and underwriting.
Does anyone remember a time when Citibank couldn't own Smith Barney or Travelors and J.P. Morgan had to limit underwriting activities? Bank of America couldn't have bought Merril Lynch under the Glass-Steagall Act. The objectives of Glass Steagall were noble: prevent financial institutions from being able to engage in excessively risky activities and eliminate inherent conflicts of interest that will give rise to inappropriate conduct or excessive risk.
By eliminating the Glass Steagall Act, banks like Citibank and Washington Mutual were able to trade in mortgage-backed securities without the limitations that were previous in place.
A few years after the Gramm-Leach-Bliley Act repealed Glass-Steagall, Phil Gramm became vice chairman of UBS’s new investment banking arm. Gramm proceeded to lobby congress to liberalize housing and mortgage laws. Then, of course, UBS later wrote off billions in subprime debt.
So Gramm went from giving the financial industry a gift after their lobbyists spend millions, to working for one of those financial services companies, to becoming a lobbyist himself to promote laws and policies that resulted in his company and many others writing off billions. Brilliant work Phil! This is the man who could be our Secretary of the Treasury.
Capitalism is a good system, but some regulation is necessary. We can't have insider trading or people will get ripped off. We can't have monopolistic practices or unfair competition will kill everyone but the biggest, strongest, most coersive company. That's why we have securities laws and anti-trust laws. Pure capitalism without regulation results in economic Darwinism. Allowing large profit-seeking corporations to function in the market unfettered by approrpiate regulation is like having a hen house full of chickens and foxes with no fences or farmers with guns. Soon you will only have fat foxes, a floor full of feathers and farmers with nothing.
Today we have a financial services crisis and an economy in peril. Three of the largest investment banks in the world have just disappeared: Bear Sterns, Lehman Brothers and Merril Lynch. That should scare people. What's next? And what is up with Bank of America? They bought Countryide in crisis and now Merrill Lynch? How many mismanaged companies can Bank of America consume before it shows the symptoms of nausiatingly-bloated over-consumption. I hope those executives at Bank of America know what they are doing. If Bank of America goes down the tubes, there will be huge problems. And what if Washington Mutual goes down the tubes? Another run on banks and another market crash like 1929? Who knows, maybe we'll have to bring the Glass-Steagall Act back and all of this will be soon forgotten as a bad Phil Gramm-induced nightmare.