Phil Gramm Owes America $2 Trillion

By GottaLaff

Imagine if you will, it's 1999 again. Are you imagining? Okay, good, because it would be pointless to continue if you weren't:

Lawmakers were falling all over themselves praising the passage of the landmark Gramm-Leach-Bliley Act, which effectively repealed much of the Glass-Steagall regulations on financial institutions coming out of The Great Depression.

Former Sen. Phil Gramm (R-TX), the main architect of the legislation, expressed fatherly pride in the bill in his floor speech at the time (recently brought to our attention by a BuzzFlash reader):

"The question is, 'How will it look 50 years from now when it has gone from infancy to maturity?' Obviously, after setting out a dramatic change in public policy, it is fair to set out a test for determining its success," Gramm said. "Ultimately, the final judge of the bill is history. Ultimately, as you look at the bill, you have to ask yourself, 'Will people in the future be trying to repeal it, as we are here today trying to repeal -- and hopefully repealing -- Glass-Steagall?' I think the answer will be no. I think it will be no because we are doing something very different from Glass-Steagall. Glass-Steagall, in the midst of the Great Depression, thought government was the answer. In this period of economic growth and prosperity, we believe freedom is the answer."

Oy. That's all I can utter right now. Oy. Moving on:

It only took a decade for our financial industry to show the weakness of his extremist deregulation argument.

[A] New York Times article published when the act passed, [gave you] the idea that the people who were opposed to this legislation were just downers that didn't want banks to make money:

The opponents of the measure gloomily predicted that by unshackling banks and enabling them to move more freely into new kinds of financial activities, the new law could lead to an economic crisis down the road when the marketplace is no longer growing briskly.

''I think we will look back in 10 years' time and say we should not have done this but we did because we forgot the lessons of the past, and that that which is true in the 1930's is true in 2010,'' said Senator Byron L. Dorgan, Democrat of North Dakota. ''I wasn't around during the 1930's or the debate over Glass-Steagall. But I was here in the early 1980's when it was decided to allow the expansion of savings and loans. We have now decided in the name of modernization to forget the lessons of the past, of safety and of soundness.''
^{*Emphasis mine}

Dorgan's comment here is remarkably prescient. What would have happened if we had better heeded his warning?

To be fair, another Democratic senator expressed worry over the act in that Times article: the late Paul Wellstone of Minnesota. But, come on. That guy was always doom-and-gloom. He also predicted that the war in Iraq would lead to untold loss of life and resources, a rise in oil prices, al Qaeda's use of American aggression as a recruitment tool, and the weakening of U.S. efforts in Afghanistan. Shows what he knew. [...]

Gramm also tries to change history in his Wall Street Journal defense:

"Moreover, GLB didn't deregulate anything," Gramm wrote, arguing that Gramm-Leach-Bliley created more regulation. But that's not what he was saying at the time. Again, from that same floor speech at the time of the bill's passage:

This is a deregulatory bill. I believe that is going to be the wave of the future. Although this bill will be changed many times, and changed dramatically as we expand freedom and opportunity, I do not believe it will be repealed. It sets the foundation for the future, and that will be the test.

Gramm was right. Gramm-Leach-Bliley did set the foundation for the future: the future financial crisis. [...] The Gramm-Leach-Bliley Act allowed all kinds of institutions -- even insurance companies such as AIG -- to get into the risky investment game. How he can continue to keep his eyes squeezed shut during this financial meltdown, I'll never understand.

Even right-wing pundits are starting to open their eyes. [...]

Maybe if we had forced AIG to just insure stuff instead of heading off to the casino, things would be more stable right now. But perhaps instead of fantasy and nostalgia, I should be counting my blessings. Congress seems poised to pass legislation to better regulate the runaway financial industry.

And things could have been much worse. After all, had McCain won the presidency in November, it was widely speculated that he would have named Gramm as his treasury secretary. Now that's a scary thought.

Didn't I just say that? Great minds...

Now do yourself a favor and go read the whole BuzzFlash piece here. I chopped it up and did it no justice at all.