“Some people look at subprime lending and see evil. I look at subprime lending and I see the American dream in action. My mother lived it as a result of a finance company making a mortgage loan that a bank would not make.”
-former United States senator Phil Gramm
There was a fascinating front page Monday NYT article on the architect of much of the past few decades radical deregulation: Phil “nation of whiners” Gramm.
The retired Texas senator claims that deregulation “played virtually no role” in the current economic turmoil engulfing the globe, nor the housing collapse or the credit crisis. The exempting of any regulation of derivatives, including state insurance supervision, reserve requirements or clearing information was not significant to the crisis. The nonfeasance of the Fed in supervising all of the non-bank lenders that lay at the heart of the housing boom and bust was not the cause either (it was “Predatory Borrowing”). And the payola scandals at the ratings agencies — Moodies, S&P, and Fitch — that slapped triple AAA ratings on paper that turned out to be junk would not have been prevented via better oversight.
Gramm said placing any blame on deregulation was simply “an emerging myth.”
I doubt you will come across a greater textbook example of cognitive dissonance, anywhere on the globe.
Here’s an excerpt:
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…
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 . . .
But looser regulation played virtually no role, he argued, saying that is simply an emerging myth.
Much of the deregulatory push he made received some bipartisan approval. The 1999 and 2000 legislation was signed by the Bill Clinton, in the midst of his impeachment scandal.
Given what has happened, Gramm is now in favor of “modest regulatory changes” — including requiring issuers of credit-default swaps to demonstrate that they have enough capital to back up their pledges.
As to everything else?
“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.”
A Deregulator Looks Back, Unswayed
ERIC LIPTON and STEPHEN LABATON
NYT, November 16, 2008