Los Angeles Personal Injury Lawyer - phil gramm

NYT: Former SEC Lawyer, "Phil Gramm is the Single Most Important Reason for the Current Financial Crisis"

Paul Kiesel — Mon, 17 Nov 2008 21:06:05 GMT

If there's no such thing as bad publicity, why is it that 2008, for former Republican senator Phil Gramm, has been nothing but bad publicity for the man who John McCain once credited with saving his sagging presidential campaign back in the summer of 2007. However, when has Phil Gramm ever received good publicity? Even when he ran for president in 1996, he was panned by both left and right political pundits:

"When he ran for president in 1996 and finished fifth in Iowa, all the profiles written of him included the line 'Even his friends don’t like him.' Self-righteous and strident, Gramm demonized his opponents and used bitter, polarizing rhetoric. During a Senate debate over Social Security, a member pointed out that the proposal under consideration would hurt 80-year-old retirees. 'Most people don’t have the luxury of living to be 80 years old,' Gramm scoffed, 'so it’s hard for me to feel sorry for them.'" (New York Times, 1/22/08)

Anyway, today's New York Times had an excellent article that expands upon a lot of what I've discussed in my blog for the past eight months. And, yet, Phil Gramm has no remorse per the country's economic health and still feels that everything he did as a senator was great for the economy and had nothing to do with the current financial crisis. Mr. Gramm, in a very ironic posit, at least ironic based on what almost every economist knows (i.e. his deregulation legislation from the late-90s, says that, "They [his critics] are saying there was 15 years of massive deregulation and that’s what caused the problem [. . .] I just don’t see any evidence of it.” This would be true, Mr. Gramm, if your name wasn't on two of the greatest legislative overhauls to the banking industry since the Great Depression, the Gramm-Leach-Bliley Act and Commodity Futures Modernization Act.

From the New York Times, 11/17/08:

WASHINGTON — Back in 1950 in Columbus, Ga., a young nurse working double shifts to support her three children and disabled husband managed to buy a modest bungalow on a street called Dogwood Avenue.

Phil Gramm, the former United States senator, often told that story of how his mother acquired his childhood home. Considered something of a risk, she took out a mortgage with relatively high interest rates that he likened to today’s subprime loans.

A fierce opponent of government intervention in the marketplace, Mr. Gramm, a Republican from Texas, recalled the episode during a 2001 Senate debate over a measure to curb predatory lending. What some view as exploitive, he argued, others see as a gift.

“Some people look at subprime lending and see evil. I look at subprime lending and I see the American dream in action,” he said. “My mother lived it as a result of a finance company making a mortgage loan that a bank would not make.”

On Capitol Hill, Mr. Gramm became the most effective proponent of deregulation in a generation, by dint of his expertise (a Ph.D in economics), free-market ideology, perch on the Senate banking committee and force of personality (a writer in Texas once called him “a snapping turtle”). And in one remarkable stretch from 1999 to 2001, he pushed laws and promoted policies that he says unshackled businesses from needless restraints but his critics charge significantly contributed to the financial crisis that has rattled the nation.

He led the effort to block measures curtailing deceptive or predatory lending, which was just beginning to result in a jump in home foreclosures that would undermine the financial markets. He advanced legislation that fractured oversight of Wall Street while knocking down Depression-era barriers that restricted the rise and reach of financial conglomerates.

And he pushed through a provision that ensured virtually no regulation of the complex financial instruments known as derivatives, including credit swaps, contracts that would encourage risky investment practices at Wall Street’s most venerable institutions and spread the risks, like a virus, around the world.

Many of his deregulation efforts were backed by the Clinton administration. Other members of Congress — who collectively received hundreds of millions of dollars in campaign contributions from financial industry donors over the last decade — also played roles.

Many lawmakers, for example, insisted that Fannie Mae and Freddie Mac, the nation’s largest mortgage finance companies, take on riskier mortgages in an effort to aid poor families. Several Republicans resisted efforts to address lending abuses. And Congressional committees failed to address early symptoms of the coming illness.

But, until he left Capitol Hill in 2002 to work as an investment banker and lobbyist for UBS, a Swiss bank that has been hard hit by the market downturn, it was Mr. Gramm who most effectively took up the fight against more government intervention in the markets.

“Phil Gramm was the great spokesman and leader of the view that market forces should drive the economy without regulation,” said James D. Cox, a corporate law scholar at Duke University. “The movement he helped to lead contributed mightily to our problems.”

In two recent interviews, Mr. Gramm described the current turmoil as “an incredible trauma,” but said he was proud of his record.

He blamed others for the crisis: Democrats who dropped barriers to borrowing in order to promote homeownership; what he once termed “predatory borrowers” who took out mortgages they could not afford; banks that took on too much risk; and large financial institutions that did not set aside enough capital to cover their bad bets.

But looser regulation played virtually no role, he argued, saying that is simply an emerging myth.

“There is this idea afloat that if you had more regulation you would have fewer mistakes,” he said. “I don’t see any evidence in our history or anybody else’s to substantiate it.” He added, “The markets have worked better than you might have thought.”

Rejecting Common Wisdom

Mr. Gramm sees himself as a myth buster, and has long argued that economic events are misunderstood.

Before entering politics in the 1970s, he taught at Texas A & M University. He studied the Great Depression, producing research rejecting the conventional wisdom that suicides surged after the market crashed. He examined financial panics of the 19th century, concluding that policy makers and economists had repeatedly misread events to justify burdensome regulation.

“There is always a revisionist history that tries to claim that the system has failed and what we need to do is have government run things,” he said.

From the start of his career in Washington, Mr. Gramm aggressively promoted his conservative ideology and free-market beliefs. (He was so insistent about having his way that one House speaker joked that if Mr. Gramm had been around when Moses brought the Ten Commandments down from Mount Sinai, the Texan would have substituted his own.)

He could be impolitic. Over the years, he has urged that food stamps be cut because “all our poor people are fat,” said it was hard for him “to feel sorry” for Social Security recipients and, as the economy soured last summer, called America “a nation of whiners.”

His economic views — and seat on the Senate banking committee — quickly won him support from the nation’s major financial institutions. From 1989 to 2002, federal records show, he was the top recipient of campaign contributions from commercial banks and in the top five for donations from Wall Street. He and his staff often appeared at industry-sponsored speaking events around the country.

From 1999 to 2001, Congress first considered steps to curb predatory loans — those that typically had high fees, significant prepayment penalties and ballooning monthly payments and were often issued to low-income borrowers. Foreclosures on such loans were on the rise, setting off a wave of personal bankruptcies.

But Mr. Gramm did everything he could to block the measures. In 2000, he refused to have his banking committee consider the proposals, an intervention hailed by the National Association of Mortgage Brokers as a “huge, huge step for us.”

A year later, he objected again when Democrats tried to stop lenders from being able to pursue claims in bankruptcy court against borrowers who had defaulted on predatory loans.

While acknowledging some abuses, Mr. Gramm argued that the measure would drive thousands of reputable lenders out of the housing market. And he told fellow senators the story of his mother and her mortgage.

“What incredible exploitation,” he said sarcastically. “As a result of that loan, at a 50 percent premium, so far as I am aware, she was the first person in her family, from Adam and Eve, ever to own her own home.”

Once again, he succeeded in putting off consideration of lending restrictions. His opposition infuriated consumer advocates. “He wouldn’t listen to reason,” said Margot Saunders of the National Consumer Law Center. “He would not allow himself to be persuaded that the free market would not be working.”

Speaking at a bankers’ conference that month, Mr. Gramm said the problem of predatory loans was not of the banks’ making. Instead, he faulted “predatory borrowers.” The American Banker, a trade publication, later reported that he was greeted “like a conquering hero.”

At the Altar of Wall Street

Mr. Gramm would sometimes speak with reverence about the nation’s financial markets, the trading and deal making that churn out wealth.

“When I am on Wall Street and I realize that that’s the very nerve center of American capitalism and I realize what capitalism has done for the working people of America, to me that’s a holy place,” he said at an April 2000 Senate hearing after a visit to New York.

That viewpoint — and concerns that Wall Street’s dominance was threatened by global competition and outdated regulations — shaped his agenda.

In late 1999, Mr. Gramm played a central role in what would be the most significant financial services legislation since the Depression. The Gramm-Leach-Bliley Act, as the measure was called, removed barriers between commercial and investment banks that had been instituted to reduce the risk of economic catastrophes. Long sought by the industry, the law would let commercial banks, securities firms and insurers become financial supermarkets offering an array of services.

The measure, which Mr. Gramm helped write and move through the Senate, also split up oversight of conglomerates among government agencies. The Securities and Exchange Commission, for example, would oversee the brokerage arm of a company. Bank regulators would supervise its banking operation. State insurance commissioners would examine the insurance business. But no single agency would have authority over the entire company.

“There was no attention given to how these regulators would interact with one another,” said Professor Cox of Duke. “Nobody was looking at the holes of the regulatory structure.”

The arrangement was a compromise required to get the law adopted. When the law was signed in November 1999, he proudly declared it “a deregulatory bill,” and added, “We have learned government is not the answer.”

In the final days of the Clinton administration a year later, Mr. Gramm celebrated another triumph. Determined to close the door on any future regulation of the emerging market of derivatives and swaps, he helped pushed through legislation that accomplished that goal.

Created to help companies and investors limit risk, swaps are contracts that typically work like a form of insurance. A bank concerned about rises in interest rates, for instance, can buy a derivatives instrument that would protect it from rate swings. Credit-default swaps, one type of derivative, could protect the holder of a mortgage security against a possible default.

Earlier laws had left the regulation issue sufficiently ambiguous, worrying Wall Street, the Clinton administration and lawmakers of both parties, who argued that too many restrictions would hurt financial activity and spur traders to take their business overseas. And while the Commodity Futures Trading Commission — under the leadership of Mr. Gramm’s wife, Wendy — had approved rules in 1989 and 1993 exempting some swaps and derivatives from regulation, there was still concern that step was not enough.

After Mrs. Gramm left the commission in 1993, several lawmakers proposed regulating derivatives. By spreading risks, they and other critics believed, such contracts made the system prone to cascading failures. Their proposals, though, went nowhere.

But late in the Clinton administration, Brooksley E. Born, who took over the agency Mrs. Gramm once led, raised the issue anew. Her suggestion for government regulations alarmed the markets and drew fierce opposition.

In November 1999, senior Clinton administration officials, including Treasury Secretary Lawrence H. Summers, joined by the Federal Reserve chairman, Alan Greenspan, and Arthur Levitt Jr., the head of the Securities and Exchange Commission, issued a report that instead recommended legislation exempting many kinds of derivatives from federal oversight.

Mr. Gramm helped lead the charge in Congress. Demanding even more freedom from regulators than the financial industry had sought, he persuaded colleagues and negotiated with senior administration officials, pushing so hard that he nearly scuttled the deal. “When I get in the red zone, I like to score,” Mr. Gramm told reporters at the time.

Finally, he had extracted enough. In December 2000, the Commodity Futures Modernization Act was passed as part of a larger bill by unanimous consent after Mr. Gramm dominated the Senate debate.

“This legislation is important to every American investor,” he said at the time. “It will keep our markets modern, efficient and innovative, and it guarantees that the United States will maintain its global dominance of financial markets.”

But some critics worried that the lack of oversight would allow abuses that could threaten the economy.

Frank Partnoy, a law professor at the University of San Diego and an expert on derivatives, said, “No one, including regulators, could get an accurate picture of this market. The consequences of that is that it left us in the dark for the last eight years.” And, he added, “Bad things happen when it’s dark.”

In 2002, Mr. Gramm left Congress, joining UBS as a senior investment banker and head of the company’s lobbying operation.

But he would not be abandoning Washington.

Lobbying From the Outside

Soon, he was helping persuade lawmakers to block Congressional Democrats’ efforts to combat predatory lending. He arranged meetings with executives and top Washington officials. He turned over his $1 million political action committee to a former aide to make donations to like-minded lawmakers.

Mr. Gramm, now 66, who declined to discuss his compensation at UBS, picked an opportune moment to move to Wall Street. Major financial institutions, including UBS, were growing, partly as a result of the Gramm-Leach-Bliley Act.

Increasingly, institutions were trading the derivatives instruments that Mr. Gramm had helped escape the scrutiny of regulators. UBS was collecting hundreds of millions of dollars from credit-default swaps. (Mr. Gramm said he was not involved in that activity at the bank.) In 2001, a year after passage of the commodities law, the derivatives market insured about $900 billion worth of credit; by last year, the number hadswelled to $62 trillion.

But as housing prices began to fall last year, foreclosure rates began to rise, particularly in regions where there had been heavy use of subprime loans. That set off a calamitous chain of events. The weak housing markets would create strains that eventually would have financial institutions around the world on the edge of collapse.

UBS was among them. The bank has declared nearly $50 billion in credit losses and write-downs since the start of last year, prompting a bailout of up to $60 billion by the Swiss government.

As Mr. Gramm’s record in Congress has come under attack amid all the turmoil, some former colleagues have come to his defense.

“He is a true dyed-in-the-wool free-market guy. He is very much a purist, an idealist, as he has a set of principles and he has never abandoned them,” said Peter G. Fitzgerald, a Republican and former senator from Illinois. “This notion of blaming the economic collapse on Phil Gramm is absurd to me.”

But Michael D. Donovan, a former S.E.C. lawyer, faulted Mr. Gramm for his insistence on deregulating the derivatives market.

“He was the architect, advocate and the most knowledgeable person in Congress on these topics,” Mr. Donovan said. “To me, Phil Gramm is the single most important reason for the current financial crisis.”

Mr. Gramm, ever the economics professor, disputes his critics’ analysis of the causes of the upheaval. He asserts that swaps, by enabling companies to insure themselves against defaults, have diminished, not increased, the effects of the declining housing markets.

“This is part of this myth of deregulation,” he said in the interview. “By and large, credit-default swaps have distributed the risks. They didn’t create it. The only reason people have focused on them is that some politicians don’t know a credit-default swap from a turnip.”

But many experts disagree, including some of Mr. Gramm’s former allies in Congress. They say the lack of oversight left the system vulnerable.

“The virtually unregulated over-the-counter market in credit-default swaps has played a significant role in the credit crisis, including the now $167 billion taxpayer rescue of A.I.G.,” Christopher Cox, the chairman of the S.E.C. and a former congressman, said Friday.

Mr. Gramm says that, given what has happened, there are modest regulatory changes he would favor, including requiring issuers of credit-default swaps to demonstrate that they have enough capital to back up their pledges. But his belief that government should intervene only minimally in markets is unshaken.

“They are saying there was 15 years of massive deregulation and that’s what caused the problem,” Mr. Gramm said of his critics. “I just don’t see any evidence of it.”

Originally posted at InjuryBoard by Paul Kiesel

"The Four" Who Helped Usher in the Economic Crisis

Paul Kiesel — Mon, 13 Oct 2008 18:48:50 GMT

There were those that predicted the current economic, foreclosure, housing, and mortgage crisis (Paul Krugman, who incidentally just won the Nobel prize in economics, Robert Shiller, Dr. Nouriel Roubini) and then there were those other figures -- politicians, economists and conservative pundits -- who recklessly enabled or promoted the economic situation the U.S. faces today (see below).

Alan Greenspan (former Fed Chairman)

We now know that stronger regulation of derivatives would have done much to stem the current financial crisis, but Greenspan argued against that philosophy:

"What we have found over the years in the marketplace is that derivatives have been an extraordinarily useful vehicle to transfer risk from those who shouldn't be taking it to those who are willing to and are capable of doing so," Mr. Greenspan told the Senate Banking Committee in 2003. "We think it would be a mistake" to more deeply regulate the contracts, he added. (New York Times, 10/8/08)

Phil Gramm (former Texas senator and economic adviser to John McCain)

From the New York Times: For more than two decades in Congress he argued that the forces of the market had to be freed from government interference. Just a year after the passage of Gramm- Leach-Bliley, he was largely responsible for another bill -- the Commodity Futures Modernization Act -- that clearly did contribute to the current crisis. That law unleashed the derivatives market and paved the way for banks to become more aggressive about investing in mortgages. As recently as this summer, he was still saying that the biggest problem facing the American economy was excessive regulation.

Chris Cox (Head of the SEC)

Cox, who is the current head of the SEC, helped put greater deregulation into effect, and as of last March, was saying the following:

"We have a good deal of comfort about the capital cushions at these firms at the moment."

Henry Paulson (Treasury Secretary)

"I have great confidence in our capital markets and in our financial institutions. Our financial institutions, banks and investment banks, are strong. Our capital markets are resilient. They're efficient. They're flexible." -- Treasury Secretary Henry Paulson on March 16, 2008

"There is little public policymakers can, or should, do to compensate for untenable financial decisions." -- Treasury Secretary Henry Paulson on July 8, 2008

From the New York Times: They wanted an exemption for their brokerage units from an old regulation that limited the amount of debt they could take on. The exemption would unshackle billions of dollars held in reserve as a cushion against losses on their investments. Those funds could then flow up to the parent company, enabling it to invest in the fast-growing but opaque world of mortgage-backed securities; credit derivatives, a form of insurance for bond holders; and other exotic instruments.

The five investment banks led the charge, including Goldman Sachs, which was headed by Henry M. Paulson Jr. Two years later, he left to become Treasury secretary.

Originally posted at InjuryBoard by Paul Kiesel

McCain Mortgage Plan: The Wrong Approach

Paul Kiesel — Fri, 10 Oct 2008 22:40:28 GMT

John McCain announced, during the last Presidential Debate, that he has a plan to combat rising foreclosure rates and curb the amount of underwater mortgages throughout the country. McCain proposes that the government should buy $300 billion worth of "bad" mortgages and refinance them. McCain did not get into the specifics of his plan or even dare to disclose that his plan would transfer the financial burden and responsibility to taxpayers, thus, taking lenders off the hook.

Members from his own party and even his economic adviser, Douglas Holtz-Eakin, are either angered by McCain's proposal or confused by its purpose (when there are several other better plans and strategies to combat the mortgage crisis). Holtz-Eakin conceded that the plan WOULD place a burden on taxpayers and, under the proposal, taxpayers would be responsible for the difference in value between the old and new mortgages. It is very likely that McCain's plan would result in a loss of taxpayer money.

Another problem with the plan is that if 1 in 6 homeowners are considered to be in "underwater mortgages." Noting that over $5 trillion of mortgages are out in the market, that would result in about $678 billion worth of mortgages that could be considered "bad." McCain's round and even number of $300 billion doesn't even address half of the people he's trying to help. It's almost as if he arbitrarily came up with the number after hearing Senators Barack Obama's and Joe Biden's foreclosure relief plans and approach to helping troubled borrowers.

Even The National Review -- a magazine that is considered to be highly influential amongst conservatives -- railed against the plan as "creating a level of moral hazard that is unacceptable [. . .] a gift to lenders who abandoned any sense of prudence during the boom years." Ouch.

Granted, McCain's plan could be enacted under the rules (Sec. 109 and 110) of the recently passed bailout plan, however, his plan departs from two major issues: 1. The bailout plan relies on the lenders and servicers taking a hit -- as Holtz-Eakin proves while quoted on a conference call per the McCain Mortgage Plan, " This bypasses that step." 2. McCain, just six months ago, said he wouldn't intervene to help borrowers or lenders, noting that he didn't understand how "Only 55 million [homeowners] have a mortgage at all and 51 million are doing what is necessary [. . .] to make their payments on time. That leaves us with a puzzling situation: How could 4 million mortgages cause this much trouble for us all?" (New York Times, 3/25/08).

It sounds like McCain's missing the days when Phil Gramm was his economic adviser, who took control of everything economics for John McCain, while trying to convince Americans, whom he coined as being a "nation of whiners," that the fundamentals of the economy are strong and that we're just in a "mental recession." Phil Gramm rolled the dice with his choice of words and it cost him his job with the McCain campaign. The Arizona senator's own role of the dice will likely come up snake eyes on this all too simplified and myopic mortgage plan.

Originally posted at InjuryBoard by Paul Kiesel

When it Comes to the Bailout, Some Refuse to See the Facts

Paul Kiesel — Tue, 30 Sep 2008 21:58:03 GMT

There are a lot of different news outlets and political blogs pointing fingers at who's to blame for the financial crisis and why Americans should or should not support the failed bailout (or rescue) package.

The most recent argument being made by conservative journalists, on websites like Human Events, is that Democrats and the Community Reinvestment Act of 1977 are responsible for Wall Street's problems and, accordingly, the $700 billion package. Republicans and Independents were innocent throughout all this, right? Even if Republicans had no hand in this problem (which is false, they did), wouldn't they at least be guilty of negligence for allowing this to occur under their watch? They did control the House, Senate and the White House at one time for four years (2002-2006, and most of the period between 2001 and 2003). But that's a hypothetical almost blameless situation for the GOP, as there are a lot of fingerprints on this mess that belong to key Republican members of Congress.

The Community Reinvestment Act (CRA) of 1977, contrary to the opinion of pundits on FoxNews.com and HumanEvents.com, is not at the foundation of current financial crisis. The CRA was a program designed to force banks to make loans in lower-income neighborhoods, but did not require the banks to make loans to lower-income individuals. There were parts of the Act that provided equal lending to credit worthy borrowers who were also low-income, and provided interest rate restrictions that would not later on in the life of the loan cause or come even close to equaling the economic hardship due to the sloppy subprime lending over the past six years. In fact, over half of the subprime lenders were independent, therefore, not subject to the regulation under the Community Reinvestment Act (which has been revised by Presidents Bush, Clinton and Bush II).

Observers need to understand that there are many parties that could be blamed and a laundry list of variables that have played a role in the mortgage meltdown. Truth in Lending violations were rampant. Mortgage fraud was at an all time high. Defrauding shareholders helped fuel the fire of new bad loans, too.

However, three key important legislative bills did play a direct role in the current meltdown: 1. Phil "We're a Bunch of Whiners" Gramm's Commodity Futures Modernization Act of 2000, which allowed for deregulation of the energy and lending industries, along with Gramm's wife being able to collect almost $1 million as an Enron board member (before its collapse) 2. Gramm-Leach-Bliley Act of 1999 stripping a large part of the Glass-Steagall Act of 1933 (see link) 3. Newt Gingrich's Home Ownership and Equity Protection Act of 1994, which was written to protect consumers against predatory loans, but it instead helped spark the subprime boom and, subsequently, even more predatory lending.

Overall, Congress needs to do what's right and protect the rights of homeowners, those who are in good loans and those in bad loans (a countless number of these troubled loans are due to TILA violations, etc.), because if the latter is jilted on this bailout package and not represented like the executives on Wall Street, the number of foreclosures that WILL occur will adversely effect home values for everyone (which is less profitable for the government who will own these loans anyway; the loans should be reasonably modified so the government can recoup taxpayer money). There are many loans out there that are "avoidable foreclosures" and it would be irresponsible of the Treasury and members of Congress not to approve the rescue package that will be voted on Wednesday evening.

Originally posted at InjuryBoard by Paul Kiesel

Biden Elucidates McCain's Regulatory History

Paul Kiesel — Tue, 23 Sep 2008 16:17:12 GMT

Up until recent weeks, John McCain did not have a history of supporting regulatory oversight. McCain's camp has vigorously denied or has tried to amend statements that prove otherwise, especially since the federal government's rescue of AIG and President Bush's proposed bailout last week. The McCain camp has tried saying that members of the media and the Obama-Biden campaign have been distorting the truth. But who's really been distorting the truth in recent weeks?

Senator Joe Biden has said that Democratic presidential candidate Barack Obama and he would "increase regulatory oversight of the very people John [McCain] has refused to regulate. Biden said this as recent as last Tuesday, September 16, on CNN's "American Morning." Both Senators Barack Obama and

McCain, on the other hand, has consistently described himself as an opponent of most government regulation and has comprised a staff of economic advisers who are in lockstep with him and President Bush on economic policy. For instance, in early 1995, after Republicans had taken control of Congress, McCain proposed an across-the board moratorium on all federal regulations, but that subsequently failed in Congress. He was quoted as saying that excessive regulations were “destroying the American family, the American dream” and voters “want these regulations stopped.” The moratorium measure was unsuccessful.

McCain often takes his lead on financial issues from two outspoken advocates of free market approaches, former Senator Phil Gramm and Alan Greenspan, the former Federal Reserve chairman. Phil Gramm was one of the more influential congressmen to pass deregulation bills in the late 90s and 2000 (i.e. Gramm-Leach-Bliley, Commodity Futures Modernization Act). Phil Gramm also said in July 2008 that the American economy was fine, healthy, and that we are a "nation of whiners" in a "mental recession." In order to distance himself from those comments, McCain would relieve Gramm of his duties as an economic adviser to his presidential campaign a couple weeks later.

In March 2008 McCain said in an interview with the Wall Street Journal, as the mortgage crisis was worsening, "I'm always for less regulation. But I am aware of the view that there is a need for government oversight. I think we found this in the subprime lending crisis -- that there are people that [cheated] the system and if not outright broke the law, they certainly engaged in unethical conduct which made this problem worse. So I do believe there is a role for oversight."

And as the situation on Wall Street has grown more severe, as there is now a proposed $700,000,000,000 bailout on the table by the Bush Administration, McCain has gradually added increasing regulation of the financial sector to his "reform projects," but he has not provided any specifics on what that reform would look like.

Therefore, Biden's statements on McCain's track record as a "deregulator" prove to be accurate, even though McCain's position has rapidly changed over the course of his campaign and even more so in recent weeks.

Originally posted at InjuryBoard by Paul Kiesel

32 Problems with the Wall Street Bailout

Paul Kiesel — Mon, 22 Sep 2008 19:28:01 GMT

Actually, there may be more or less than 32 problems with Bush's Wall Street Bailout proposal, but there is no greater problem than the 32 words present in Section 8 of the Bush Administration's legislation.

Section 8: Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.

Based on the track record of the Bush Administration (9/11, Afghanistan, Iraq, Hurricane Katrina, the events that led up to Wall Street's demise, past proposals to privatize social security, etc., etc.), to not question their authority or provide oversight to how the billions are spent by Treasury Secretary Paulson (or the Economic Czar that Bush proposes; Section 8 also cites "unfettered authority" that would be given to Paulson), or to review the decisions made by the ones in charge of this bailout, would be as irresponsible as the Wall Street CEOs who acted like Tom Cruise's character, Joel Goodsen, from Risky Business when his parents left town, the moment Phil Gramm, John McCain and their buddies provided and voted on the legislation that deregulated the banking and lending industries.

Section 8, as it is currently written (this could be revised after Congress reviews the proposed bill and adds its provisions), is one of the more transformative sentences of economic policy in U.S. history. It transfers a significant amount of power to the Executive Branch, while occluding any possibility for oversight, and offering no guarantees in return. This is amazing considering the fact that Bush was explicit in his speech last Friday morning, when he discussed the need for more transparency and more oversight throughout Wall Street. All Section 8 does, and reaffirms, is that the Bush Administration, in this version of the bailout plan, wants nothing to do with transparency, and wants to have uncontested control of how the $700,000,000,000 bailout funds are dispersed before the administration comes to a wheezing halt on January 20, 2009.

However, over in the Senate, Democratic Connecticut Senator Chris Dodd is coming up with a bailout bill of his own. Dodd's bill does not include anything similar to Section 8.

Originally posted at InjuryBoard by Paul Kiesel

Biden: End "Cowboy Mentality" of Bush-McCain Era of Deregulation on Wall Street

Paul Kiesel — Fri, 19 Sep 2008 19:56:30 GMT

Democratic vice presidential candidate Joe Biden told about 1,000 supporters earlier today in Virginia that, "ending the cowboy mentality of the Bush-McCain era" on Wall Street is part of the solution to the country's economic and housing crisis.

Biden said that "these guys," like Bush, McCain & Phil Gramm, have worshipped at the shrine of deregulation for years and that there needs to be short-term, immediate intervention to "stanch the bleeding" in the financial markets and that in the long term, "we have to have a major, major overhaul of how the financial system works."

Biden also touched upon some of the ideas that Obama is putting together with him to correct the severe economic state for the middle-class, who did not receive any type of bailout earlier today when Bush made his bailout plans known. Among those ideas are tax breaks, cuts and benefits to people who are 55 and over and making less than $55,000, individuals making less than $60,000 (a tax rebate for gasoline prices), and a second round of economic stimulus checks.

Originally posted at InjuryBoard by Paul Kiesel

What's Missing From Bush's Bailout Plan? For Starters, the Word Bailout...

Paul Kiesel — Fri, 19 Sep 2008 19:36:27 GMT

It's finally happened. The federal government, much to the chagrin and support of Congressional leaders, stepped in this morning and has written a blank check for Wall Street's blunders.

In his speech, President Bush did not use the word "bailout" once to describe a plan that is nothing short of a bailout. Treasury Secretary Paulson, Fed Chairman Bernanke and SEC Chairman Cox briefed leaders on Capital Hill, and urged Congress to pass legislation approving the federal government's purchase of illiquid assets, such as troubled mortgages (bad loans, like subprime and option ARM loans; the latter loans are about to reset early next year and cause more financial tumult, but now it will be at the expense of taxpayers instead of Wall Street CEOs and investors), from banks and other financial institutions.

CNBC has reported that, "The proposal to create a massive facility to buy mortgage-backed securities could cost as much as a half-trillion-dollars (this figure does not include the more than $200 billion already at stake from Bear Stearns, IndyMac, Fannie Mae, Freddie Mac, etc., etc.) and would involve the purchase of both private-label and government-guaranteed mortgages, according to an administration official.

The copious amount of illiquid assets (which is likely to be a buzz word for sometime) on many of these firms' balance sheets -- firms that will benefit and not be held responsible BECAUSE of Bush's bailout -- was due to the practice of lending mortgages with ambiguous, misleading and fraudulent language in the Truth in Lending forms. The problem is that these types of loans are still out in the market, they will have interest rate resets (ballooned payments on loans that were negatively amortizing) and cause borrowers much financial stress in the coming months, and now the government will assume the responsibility of them (illiquid assets), while Wall Street, without any regulation reform passed by Congress, will be able to go back out and lend some more.

What about homeowners? What about Main Street in general? Just because Wall Street's trash was being carried out to the curb by the Treasury and Fed, doesn't mean "Bush's Bailout" automatically smells good for the rest of America. Why wasn't mortgage modification for troubled borrowers a provision added to the bailout? Then, lenders would have had to modify mortgages (that had no business being written in the first place) in order to dump their garbage assets onto the government. Bush wasn't vague about this issue, he just omitted it all together.

Bush said today, "[M]y administration looks forward to working with Congress on measures to bring greater long-term transparency and reliability to the financial system, including those in the regulatory blueprint submitted by Secretary Paulson earlier this year."

One has to be dubious of the president's claim of restoring transparency. Not only was it Republican-led legislation (Phil Gramm: Commodity Futures Modernization Act of 2000 and Gramm-Leach-Bliley Act, which repealed part of the Glass-Steagall Act, allowing commercial and investment banks to consolidate) that enabled today's bailout, but the fact that Bush doesn't even use the word bailout is troublesome and lacks transparency.

Again, as I've said in many other blogs, we'll have to wait for the next administration to come in and do its best to try and straighten out the last eight years of missed opportunities. Not extending an olive branch to average citizens, as Obama suggested today, is another missed opportunity by the Bush Administration.

Originally posted at InjuryBoard by Paul Kiesel

Who's to Blame for the Economic & Housing Crisis?

Paul Kiesel — Thu, 18 Sep 2008 15:48:29 GMT

Who deserves the blame for the economic and housing crisis? It's difficult to point the finger at one individual for instigating this mess, because many people were involved. In fact, the blame could easily be placed on one entire group, several cabals or the deregulated system: The failure to regulate banks by the Bush Administration and/or blaming Wall Street for such hubristic lending practices, to give two examples. However, politicians will often find it more convenient to identify a specific villain (who is probably closely linked to the problem, but is not the only enabler of the problem) and place the spotlight on him or her.

Take for example John McCain's statements today from Cedar Rapids, Iowa: "The chairman of the S.E.C. serves at the appointment of the president and in my view, has betrayed the public’s trust. If I were president today, I would fire him." The SEC chairman is Chris Cox. And Chris Cox was appointed by President George W. Bush, although McCain avoided mentioning the particular president who put Cox into office, and even avoided naming Cox.

Okay, so McCain, as of today, believes Cox, a Republican, is to blame for Wall Street's meltdown. According to that logic, Bush is also to blame, even though he isn't explicitly mentioned by McCain, because Bush is the one who appointed Cox. But if we're going to play the "John McCain Blame Game," then let's really get down to brass tacks.

McCain neglected to tell his audience and reporters a lot when blaming the SEC chairman for the economic/mortgage meltdown -- omissions aplenty. First, McCain doesn't even name Cox. He doesn't name Bush. He doesn't talk about how Cox whet his political chops as a one-time legal aide in Ronald Reagan's White House. McCain omits the fact that Cox was a major player in formulating GOP policy, including, as The Los Angeles Times puts it, "a generally hands-off regulatory approach to business that McCain also advocated."

Hmmm...

It took Cox only three years to complete his undergraduate program at the University of Southern California. After that he earned both a master's degree (in business administration) and a law degree from Harvard. The Almanac of American Politics wrote, while Cox was still in the House of Representatives, that his "intellect and range of interests are impressive." According to the logic of the McCain campaign, that would make him an elitist, right?

Anyway, Cox was confirmed for the SEC post on a voice vote by the Senate -- a chamber that included John McCain as a member. John McCain would have had to thoroughly consider Cox's qualifications in order to find him fit for the post of SEC chairman and then subsequently vote for him. So would that mean McCain is really the one to be blamed for the financial crisis because he voted, instead of voicing opposition to Bush's appointment, for Cox to chair the SEC? No. Was he complicit? Yes, sort of. But more importantly, for McCain to single out Cox is just wrong and distorts the truth (and avoids McCain having to field questions about his relationship with Phil Gramm). Cox is part of the problem, but the turmoil surrounding Wall Street and the housing market is greater and has more players than it appears.

Originally posted at InjuryBoard by Paul Kiesel

Democrats and Republicans Finally Agree... At Least on One Issue

Paul Kiesel — Thu, 11 Sep 2008 17:46:34 GMT

What's the difference between a Republican hockey mom and a Democrat that owns a pitbull? Obviously, a lot! However, Democrats and Republicans can agree there's one emerging issue on which they're in complete accord: The recently deposed CEOs who led Fannie Mae (Daniel Mudd) and Freddie Mac (Richard Syron) into financial quicksand don't deserve to collect multimillion-dollar bonuses on their way out the door.

Members of Congress and both Senators Barack Obama and John McCain have been incensed all week that the two former executives were entitled to -- and likely to receive most of -- a $24 million bonus after being fired.

Although Bush and White House officials have remained silent and noncommittal, administration officials are clandestinely trying to find a way to winnow the severance payments to Mudd and Syron.

As the Los Angeles Times points out, "The furor reflects an overarching political reality: As the government has committed more and more tax dollars to bailing out huge financial institutions to protect the overall economy, it has become more important to avoid even the appearance of rewarding those seen as having contributed to the problem," (Los Angeles Times, 9/11/08).

And the two disgraced executives should not receive millions in compensation. Look at the ignorance and indifference Mudd and Syron displayed since 2003, as I blogged on the subject last month:

David Andrukonis, the former chief risk officer to the embattled mortgage giant, told Syron in mid-2004 that the company was buying too many bad loans that "would likely pose an enormous financial and reputational risk to the company and the country." Syron refused to consider the possibilities that Andrukonis portended, contending that his options were limited. He claims several times over that he was almost bullied into buying more loans by Congress and shareholders, however, at the end of the day, he runs the company and knew that complying with both groups would result in the compensation he's received since 2003: $38 million. Therefore, he chose not to rock a boat that would eventually sink his reputation, the company's shares and require government/taxpayer involvement, but we now know that, to Syron, all of those negatives were worth $38 million.

Syron and Fannie Mae's chief executive, Daniel H. Mudd, whose company is also facing the same problems as Freddie, defended their choices of buying high risk loans, saying that they did not anticipate that the housing market would decline so quickly (yet they received a bevy of warnings telling them to curb their high risk mortgage purchases). But the more sinister aspect to their defense is that Syron and Mudd, yielding to the pressures of Congress and shareholders, wagered that if things got too bad (housing prices crashed), the government would bail them out.

Andrukonis reiterated Syron's and Mudd's foresight of a government bail out (which they foresaw in this instance, but not in predicting that buying bad loans would equal financial turmoil?). "The thinking was that if something really bad happened to the housing market, then the government would need Freddie and Fannie more than ever, and would have to rescue them [. . .] Everybody understood that at some level the company was putting taxpayers at risk.” (LosAngeles.InjuryBoard.com, 8/5/08)

McCain and Obama were practically in unison on the compensation issue. John McCain, who has a dubious record when it comes to the lending industry, was straightforward and practical in his response to the situation at a rally Wednesday in Fairfax, Virginia, "CEOs that led us into this mess are walking away with over $20 million, and we're not going to let that happen as president [. . .] They deserve nothing. They should be paying it back."

In Riverside, Ohio, on Tuesday, Obama said, "It would be unacceptable for executives of these institutions to earn a windfall at a time when the U.S. Treasury has taken unprecedented steps to rescue these companies with taxpayer resources."

It's nice to see the presidential candidates unequivocally agree at least on one issue, especially McCain, considering his former, closest economic adviser, Phil Gramm, still thinks we're a "nation of whiners." I'm sure McCain's growing vociferous dissatisfaction with the failed Republican-led deregulation of Wall Street, is much to Gramm's chagrin.

Originally posted at InjuryBoard by Paul Kiesel