Gary J Carter
2008-07-10 17:14:10 UTC
'Forclosure Phil' Gramm: How John McCain's Closest Economic Advisor
Helped Engineer the Morgage Crisis
Posted by Democracy Now!, Democracy Now! at 12:37 PM on July 9, 2008.
Journalists Nomi Prins and David Corn discuss the housing crisis and
its link to the lobbyist writing McCain's economic policy.
In the latest issue of Mother Jones magazine, David Corn writes,
"Whos to blame for the biggest financial catastrophe of our time?
There are plenty of culprits, but one candidate for lead perp is
former Sen. Phil Gramm. Eight years ago, as part of a decades-long
anti-regulatory crusade, Gramm pulled a sly legislative maneuver that
greased the way to the multibillion-dollar subprime meltdown. Yet has
Gramm been banished from the corridors of power? Reviled as the
villain who bankrupted Middle America? Hardly. Now a well-paid
executive at a Swiss bank, Gramm cochairs Sen. John McCains
presidential campaign and advises the Republican candidate on economic
matters."
AMY GOODMAN: The worst of the economic crisis may be far from over.
That was the message of Federal Reserve Chair Ben Bernanke Tuesday. He
indicated the housing and financial turmoil will persist deep into
next year.
The Senate, meanwhile, is deliberating a bill this week that would
provide government-backed loans to 400,000 homeowners on the brink of
foreclosure. The housing bill has faced some resistance from
Republican lawmakers and was also threatened with a White House veto
but is expected to pass the Senate.
But with skyrocketing foreclosure rates, critics say the measure is
expected to only help a small percentage of the estimated three
million homeowners threatened with foreclosure. The Washington Post
also reported last month the bills key provisions were suggested to
Congress by lobbyists for major banks like Credit Suisse and Bank of
America, banks that are facing huge losses from the subprime mortgage
crisis. The nations top housing official, Steve Preston, warned
Tuesday that the legislation could overwhelm the Federal Housing
Administration with risky loans.
To discuss the state of the economy, Im joined now by two guests.
Nomi Prins is a former investment banker turned journalist. She used
to run the European analytics group at Bear Stearns, now a senior
fellow at Demos. She is the author of two books: Other Peoples Money:
The Corporate Mugging of America and Jacked: How Conservatives Are
Picking Your Pocket. Nomi Prins is here in the firehouse studio. Were
also joined on the phone from Washington, D.C. by David Corn, D.C.
bureau chief of Mother Jones. His article in the latest issue of the
magazine is called Foreclosure Phil, and well find out who that is
in just one second.
Nomi Prins, what are the five ways that Washington and Wall Street has
brought us to this crisis?
NOMI PRINS: Well, its a historical matter, and basically theres been
a lot of legislation that has weakened the regulation of the housing
industry and the lending industry and the trading that takes place
with it that Wall Street has enacted and has gotten us into this
major, major credit mess.
It really goes back to the 90s. There was an act passed in 1994 that
was trying to actually help homeowners get protection from abusive
lending, in other words, lending at a very, very high interest rate.
And it was passed, and it was advocated by consumer advocates, and it
had aspects of being a good bill. However, what it did was cap them
after a certain rate, after a twelve-and-a-half percent rate, after a
certain rate over treasuries, and it didnt cap all of the abuses that
could happen in between. So what it did, in fact, was create the
beginning of the subprime situation, where lenders could say,
Alright, we dont want to come under this regulationits called the
HOEPA law, H-O-E-P-A, Home Owners Equity Protection Act of 1994.
Lenders said, Alright, you know what? We wont come in there at the
high rates. We dont want to get on the radar screen in that respect.
Well just come right under, and well start to look for ways to make
loans with lots of bells and whistles and lots of fees attached to
them, where we can come under the radar screen and start to create
this kind of market of potential problems.
Now, we didnt know these problems were happening in the 90s. That
was one issue. They didnt start to happen until the market started to
fall apart after the boom of the 90s, the bust that occurred in 2001,
2002, because of a lot of corporate scandals and other measures that
were happening in the world and in the US economy, in particular. And
since then, weve had a fallout. But the seeds were placed in the
90s.
The second thing that happened also in the 90s, in 94, was the Truth
in Lending Act, which was a 1968 original act. It was put together to
create a situation where lenders had to discloseand not only disclose
all of their potential alarms that could go off within a loan to a
perspective borrower, they had to also be accountable. And thats a
situation weve come a long ways away from, is the accountability of
lenders, that they could actually be brought to court, be brought to
trial, be brought to be accountable for hidden problems in their
loans.
In 1994, that Truth in Lending Act was amended, and it was amended
because there started to be a lot of lawsuits, starting in Florida,
then flowing through the United States, which basically said, You
know what? If lenders go outside of their responsibilities, they can
be sued. They can have to pay out. They can lose certain amounts of
money that they have counted on. And the lenders were like, you know,
We dont like that. We dont like to be accountable for what were
doing, so they lobbied for the amendments, and that happened in the
90s.
AMY GOODMAN: Well, lets go then to the campaign adviser to John
McCain, Phil Gramm, the former Texas senator. David Corn, can you talk
about his significance today and in the past in this crisis?
DAVID CORN: Well, yes. And Nomi gave us a great introduction, and its
a pleasure to be on a show with such an informed and intelligent voice
on these matters, which often are quite complicated.
But another part of the history that has led to the subprime crisis
involves a sly backroom legislative maneuver mounted by Phil Gramm,
who was Republican chairman of the Senate Banking Committee in the
90s, and this happened actually in the end of the year 2000, and who
today is a leading adviser to John McCain, co-chairman of his campaign
and mentioned as a possible Treasury secretary should John McCain win
the presidency.
And what happened in 2000 wasit was a painful period for some of us.
It was the rightit was the week that the Supreme Court was giving the
election to George W. Bush. As often happens in Washington, Congress
had yet to pass most of the appropriation measures that are needed to
before that Congress coming to a close, and so they were lumping
together, you know, six, seven different appropriation bills into one
mega bill, working all hours of the day, and no one really
understanding what was and wasnt in the bill that they had to pass to
keep the government going and most people being distracted by the
ongoing fight between George W. Bush and Al Gore in the Supreme Court.
And in the midst of all that chaos, Senator Phil Gramm slipped into
this must-pass spending bill a 268-page bill, the Commodity Futures
Modernization Act, which had been kicking around for about a year. The
House had passed one version of it, but there were a lot of different
versions. And the point of it was really to do a lot of different
types of deregulation. It included something called the Enron
loophole, which allowed Enron to sell energy futures on a deregulated
basis, which helped lead to the California energy crisis the following
year and the subsequent collapse of Enron.
But another portion of the bill deregulated these financial
instruments called swaps. And one reason I understand this is
because Nomi explained it to me some time ago. These are instruments
that are created by investment houses and securities firms, and
theyre basically bets that cover their investments. So they get them
from another firm, so if an investment they have is going to go south,
going to tank, they can collect on this so-called insurance policy
from somebody else. The problem is that these swaps, thanks to Phil
Gramms bill, are totally, totally unregulated, and the swap market is
something like now about four times the size of Wall Street, in terms
of securities that are regulated. And it really turned a lot of the
economy into a secret casino, all this action going back and forth,
people betting on bets.
And how this related to the subprime crisis is, about this same time,
you know, securities firms started bundling all these bad or risky
mortgages and securitizing them, and then they would sell these
securities or buy them and then buy swaps or sell swaps to cover the
possible loss. So it really enabled a lot of firms to go hog wild on
the subprime stuff and haveand the brokers who are doing this have no
worry about losing, because they were passing on the possible risks of
loss to somebody else who never really had to have the assets to cover
those losses. And this is all sort of taking place off the books.
When UBS, which is the biggest Swiss banking company, lostI dont
know, I forget the number now$38 billion or so on the subprime
crisis, it put out an internal report for public consumption
explaining how this had happened, and they noted that it had happened,
in part, because the securities that they lost money on, connected to
these subprime loans, had been backed by their trading in swaps.
So here they were saying, We were able to do this because of these
unregulated swaps, which some people at this communityCommodity
Futures Trading Commission had wanted to regulate. And they were the
lobbyists who went tothe financial industry lobbyists who went to
Phil Gramm and said, Listen, weve got to have these swaps
unregulated. They convinced Larry Summers, who was Treasury
secretary. They convinced Alan Greenspan. And even though the bill was
pronounced dead weeks before Phil Gramm did anything, he still managed
to slip it through, get it passed by Congress when no one was looking,
and no one even read it. You know, no one knew what was in this bill.
And then the swap market took off, which helped lead to the subprime
crisis.
And so, youd think that a guy who did that and also gave us the Enron
loophole would now be persona non grata in Washington and in the world
of high finance. Well, if you thought that, youd be wrong, because
Phil Gramm went on to become a lobbyist and a high-paid executive at
UBS, that same Swiss banking firm that lost tens of billions of
dollars on the subprime crisis. And as I mentioned earlier, hes in
line now for a high position in a McCain administration. So, you know,
you talk about failing upwards, Phil Gramm is a great example of the
market not working. Somebody who has failed so grandly as Phil Gramm
should be driven out of the market. He should be considered a bad
product, laissez faire. But instead, because hes pals with John
McCain and has been for a long time, hes in line to make these
mistakes and do harm to the economy and to all of us yet again.
AMY GOODMAN: You also mention, David Corn, that Enron was a family
affair, including his wife, Wendy Gramm.
DAVID CORN: Yes, well, and a lot of this can be complicated, and let
me just tell people, if they want to, they can read the story I wrote
for Mother Jones at motherjones.com and just go to the home page and
click on my box, and it will come up.
But Wendy Gramm, the wife of Phil Gramm, had worked at the Commodity
Futures Trading Commission, the CFTC, in the years prior to this and,
at the urging of Enron, had passed a regulationnot a law, but a
regulationthat had begun the deregulation process for Enrons energy
commodities. And oncewhile she was doing that, Phil Gramm was
getting, you know, tens of thousands of dollarsI think ultimately
ended up being a couple hundred thousand, if not a million or soin
Enron-related contributions. And then Wendy Gramm passes this
regulation.
About four, five, six weeks after she does that, she leaves the CFTC
to go into private business, and guess which board of which
corporation she ends up sitting on. Enron, of course. And in the next,
you know, couple of years, she and her husband, Phil Gramm, because
hes a beneficiary of this, received hundreds of thousands of dollars
in direct personal payments from Enron. So it truly is a family
affair, and its something that people are appalled about. In fact,
you know, even now, Congress isand the Senate is working on closing
what they call the Enron loophole brought to us by the Gramms.
AMY GOODMAN: Were going to come back to this discussion. David Corn,
now Washington bureau chief of Mother Jones magazine, and Nomi Prins,
who has just written a piece on the crisis that were talking about
today, well be back with them both in a minute.
[break]
AMY GOODMAN: Our guests: David Corn of Mother Jones magazine and Nomi
Prins. Shes written two books. Shes with Demos. Her latest book is
called Jacked: How Conservatives Are Picking Your Pocket.
The Senate is considering this week a bill that would deal with the
issue of foreclosures for some 400,000 Americans. What about this?
Whats your assessment of it?
NOMI PRINS: It goes back to a situation where the Senate is trying to
band-aid a crisis that the Senate effectively, and the rest of
Congress, helped to create by things that David was talking about in
terms of making it difficult to understand what is going on. Every
single bit of financial deregulation makes it impossible to understand
whats going on.
So what the Senate is now discussing is a bill that will help 400,000
or so families in terms of facing a foreclosure and being able to
renegotiate their mortgage payment and the balance of their mortgage
down, because the market has gone down and they have also had their
rates go up in their face. So, basically, to make up that difference
they cant pay for, the Senate is coming in and saying, You know
what? Heres $300 billion to the Federal Housing Association, and they
will be able to effectively insure those mortgages to the lenders.
In effect, it will help people, but it is also, to a large extent, a
lender bailout, because its basically saying to lenders, You know
what? Instead of you having to foreclose on a loan and deal with
selling it in this market and whatever problems might occur because of
that, were actually going to guaranteewere going to effectively
government-guarantee the loan to you, if you chooseand this is
voluntary on the part of lendersif you choose to renegotiate down
the balance of that mortgage with your borrower. Thats effectively
what is going on in the Senate right now. It will help some borrowers.
It does not change the lending landscape, and it does not make lenders
have to come to the table and change the terms of the loans that were,
in many cases, abusive or slightly predatory or obtuse, to begin with.
AMY GOODMAN: The Federal Reserve chair, Ben Bernanke, also said the
Fed might extend its unprecedented lending program to the largest
investment banks into next year and has urged lawmakers to increase
the central banks regulatory powers.
NOMI PRINS: Well, right. This is a thing where the Fed screwed up and
knew it was screwing up while it was screwing up. Bernanke said in
2006 the housing market might be soft. He said in the beginning of
2007 that it is a problem, although it wont drag down the rest of the
general economy. Hes had chances to do things along the way and
hasnt.
So now the solution is to give the Fed more power to (a) extend money
out to the banking system that abused the money that they had to begin
with, in terms of leveraging it into the types of things that David
Corn was talking about, in terms of swaps, in terms of subprime types
of instruments, and its saying, You know, were going to help you,
the banking system, get through the mess you created. And you know
what? We want more power to basically regulate you in the future,
because we didnt do it enough to begin with during the last few years
while all of these problems were brewing.
AMY GOODMAN: Let me ask you, David Corn, Phil Gramm wrote a piece
endorsing John McCain last year. In it, he said about John McCain, I
believe the man we need to meet the mortal need today is here. He is
experienced, but has not lost his common sense or his ability to be
outraged. His conservatism is not the result of a studied philosophy,
but of common sense and personal observation. His name is John McCain.
He might not be the right president for all times, but he is the right
president for these times. And he particularly highlighted his
willingness to not raise taxes or repeal the Bush tax cuts, but to
restrain our spending habits.
DAVID CORN: Well, you know, sycophants go pretty far in Washington to
praise people who might be in a position to reward them. And, you
know, thats what that piece was, that was basically, you know, Phil
Gramm auditioning for a job in the John McCain administration.
You know, to take a step back from all this, I mean, there is Phil
Gramm talking about conservatism and conservative principles. At the
same time, you know, Nomi describes the system we have, which is not a
conservative system. This is not really a free market system. We have
these, you know, institutions that want to be freefinancial
institutions that want to be free of regulations and have no
transparency and do whatever they want in order to, you know, pursue
their own profits. But then, when things go awry, they come running to
the federal government, you know, for backup, for support. Well, we
cant let Bear Stearns fail, because then all these people will lose
their jobs, and well have a domino effect.
And, you know, Im not saying that theyre wrong in that regard, but
its the taxpayer who ends up being screwed in the first place, who
then, you know, they come to to prop them up without really offering
much in terms of a stake-holding share in whats going on. They dont
come forward and say, Were going to be more transparent now. They
dont come forward and say, Were going to end our predatory
practices. And, you know, we have few in governmentyou know, we have
some, but notbut certainly not in the John McCain-Phil Gramm
campthat says, OK, well, were going to help you out, but were
going to demand that you act more responsibly, and were going to
demand that you let us see what youre doing.
This comes close to being a national security issue. If you have, you
know, financial institutions, on which the country depends for its
financial health, engage in all sorts of practices that we cant
seeyou know, these swaps that I mentionedits sort of like the dark
matter of the universe. You know, theres stuff going on out there
that we have no ideamaybe Nomi does, to some extent, but most
citizens dont. Our elected representatives, except for the few who
serve on the Banking Committee, dont understand this stuff. Former
Secretary of Treasury Rubin, you know, has claimed that he
couldntyou know, at the beginning, he couldnt understand the
subprime crisis.
And yet, you know, we end up beingthe taxpayers collectivelythe
sucker pool at the end of the day to try to bail these people out or
give them better credit. And some of that helps, you know, people who
are facing foreclosure and who need loans, but a lot of it is done at
a pretty low price in terms of what these institutions and firms and
industries have to give back.
AMY GOODMAN: Nomi Prins, what has to happen today?
NOMI PRINS: Well, what has to happen today is we need to create
transparency and accountability in the system, and it has to be
enforceable, and it has to be mandatory. Lenders cant voluntarily
choose to now go back and help out and make borrowers the culprits and
have them do the legwork. It has to be mandatory. Disclosure has to be
mandatory. The Enron loophole that David was mentioning, it has to be
closed. You cant have exchanges with trillions of dollars of
contracts and trades going through thenot only cannot human people on
the regular street understand, but Congress doesnt understand, the
Fed doesnt understand.
You have to create a situation where every single transaction is
transparent, and if it goes outside of certain enforceable legislative
enacted parameters, it has to be taken apart, and it hasand the
people who are trading or doing whatever it is they are doing have to
be responsible for the mess they create, because this situation is
Wall Street and lenders basically going back to the federal
government, like David was talking about, and asking for help to get
them out of the mess that they themselves created, and the federal
government and Congress not stepping back and saying, You know, were
not just going to help a few homeowners right now. We need to change
the entire system. We need to make it transparent. We need to make the
legislation enforceable. And we need to bring some control into whats
going on and understanding of what we need to be looking for.
AMY GOODMAN: Well, Nomi Prins, I want to thank you for being with us.
Nomi Prins is at Demos. Her books are Jacked: How Conservatives Are
Picking Your Pocket and, before that, Other Peoples Money. David Corn
is the Washington bureau chief of Mother Jones. His latest piece is
called "Foreclosure Phil.
Helped Engineer the Morgage Crisis
Posted by Democracy Now!, Democracy Now! at 12:37 PM on July 9, 2008.
Journalists Nomi Prins and David Corn discuss the housing crisis and
its link to the lobbyist writing McCain's economic policy.
In the latest issue of Mother Jones magazine, David Corn writes,
"Whos to blame for the biggest financial catastrophe of our time?
There are plenty of culprits, but one candidate for lead perp is
former Sen. Phil Gramm. Eight years ago, as part of a decades-long
anti-regulatory crusade, Gramm pulled a sly legislative maneuver that
greased the way to the multibillion-dollar subprime meltdown. Yet has
Gramm been banished from the corridors of power? Reviled as the
villain who bankrupted Middle America? Hardly. Now a well-paid
executive at a Swiss bank, Gramm cochairs Sen. John McCains
presidential campaign and advises the Republican candidate on economic
matters."
AMY GOODMAN: The worst of the economic crisis may be far from over.
That was the message of Federal Reserve Chair Ben Bernanke Tuesday. He
indicated the housing and financial turmoil will persist deep into
next year.
The Senate, meanwhile, is deliberating a bill this week that would
provide government-backed loans to 400,000 homeowners on the brink of
foreclosure. The housing bill has faced some resistance from
Republican lawmakers and was also threatened with a White House veto
but is expected to pass the Senate.
But with skyrocketing foreclosure rates, critics say the measure is
expected to only help a small percentage of the estimated three
million homeowners threatened with foreclosure. The Washington Post
also reported last month the bills key provisions were suggested to
Congress by lobbyists for major banks like Credit Suisse and Bank of
America, banks that are facing huge losses from the subprime mortgage
crisis. The nations top housing official, Steve Preston, warned
Tuesday that the legislation could overwhelm the Federal Housing
Administration with risky loans.
To discuss the state of the economy, Im joined now by two guests.
Nomi Prins is a former investment banker turned journalist. She used
to run the European analytics group at Bear Stearns, now a senior
fellow at Demos. She is the author of two books: Other Peoples Money:
The Corporate Mugging of America and Jacked: How Conservatives Are
Picking Your Pocket. Nomi Prins is here in the firehouse studio. Were
also joined on the phone from Washington, D.C. by David Corn, D.C.
bureau chief of Mother Jones. His article in the latest issue of the
magazine is called Foreclosure Phil, and well find out who that is
in just one second.
Nomi Prins, what are the five ways that Washington and Wall Street has
brought us to this crisis?
NOMI PRINS: Well, its a historical matter, and basically theres been
a lot of legislation that has weakened the regulation of the housing
industry and the lending industry and the trading that takes place
with it that Wall Street has enacted and has gotten us into this
major, major credit mess.
It really goes back to the 90s. There was an act passed in 1994 that
was trying to actually help homeowners get protection from abusive
lending, in other words, lending at a very, very high interest rate.
And it was passed, and it was advocated by consumer advocates, and it
had aspects of being a good bill. However, what it did was cap them
after a certain rate, after a twelve-and-a-half percent rate, after a
certain rate over treasuries, and it didnt cap all of the abuses that
could happen in between. So what it did, in fact, was create the
beginning of the subprime situation, where lenders could say,
Alright, we dont want to come under this regulationits called the
HOEPA law, H-O-E-P-A, Home Owners Equity Protection Act of 1994.
Lenders said, Alright, you know what? We wont come in there at the
high rates. We dont want to get on the radar screen in that respect.
Well just come right under, and well start to look for ways to make
loans with lots of bells and whistles and lots of fees attached to
them, where we can come under the radar screen and start to create
this kind of market of potential problems.
Now, we didnt know these problems were happening in the 90s. That
was one issue. They didnt start to happen until the market started to
fall apart after the boom of the 90s, the bust that occurred in 2001,
2002, because of a lot of corporate scandals and other measures that
were happening in the world and in the US economy, in particular. And
since then, weve had a fallout. But the seeds were placed in the
90s.
The second thing that happened also in the 90s, in 94, was the Truth
in Lending Act, which was a 1968 original act. It was put together to
create a situation where lenders had to discloseand not only disclose
all of their potential alarms that could go off within a loan to a
perspective borrower, they had to also be accountable. And thats a
situation weve come a long ways away from, is the accountability of
lenders, that they could actually be brought to court, be brought to
trial, be brought to be accountable for hidden problems in their
loans.
In 1994, that Truth in Lending Act was amended, and it was amended
because there started to be a lot of lawsuits, starting in Florida,
then flowing through the United States, which basically said, You
know what? If lenders go outside of their responsibilities, they can
be sued. They can have to pay out. They can lose certain amounts of
money that they have counted on. And the lenders were like, you know,
We dont like that. We dont like to be accountable for what were
doing, so they lobbied for the amendments, and that happened in the
90s.
AMY GOODMAN: Well, lets go then to the campaign adviser to John
McCain, Phil Gramm, the former Texas senator. David Corn, can you talk
about his significance today and in the past in this crisis?
DAVID CORN: Well, yes. And Nomi gave us a great introduction, and its
a pleasure to be on a show with such an informed and intelligent voice
on these matters, which often are quite complicated.
But another part of the history that has led to the subprime crisis
involves a sly backroom legislative maneuver mounted by Phil Gramm,
who was Republican chairman of the Senate Banking Committee in the
90s, and this happened actually in the end of the year 2000, and who
today is a leading adviser to John McCain, co-chairman of his campaign
and mentioned as a possible Treasury secretary should John McCain win
the presidency.
And what happened in 2000 wasit was a painful period for some of us.
It was the rightit was the week that the Supreme Court was giving the
election to George W. Bush. As often happens in Washington, Congress
had yet to pass most of the appropriation measures that are needed to
before that Congress coming to a close, and so they were lumping
together, you know, six, seven different appropriation bills into one
mega bill, working all hours of the day, and no one really
understanding what was and wasnt in the bill that they had to pass to
keep the government going and most people being distracted by the
ongoing fight between George W. Bush and Al Gore in the Supreme Court.
And in the midst of all that chaos, Senator Phil Gramm slipped into
this must-pass spending bill a 268-page bill, the Commodity Futures
Modernization Act, which had been kicking around for about a year. The
House had passed one version of it, but there were a lot of different
versions. And the point of it was really to do a lot of different
types of deregulation. It included something called the Enron
loophole, which allowed Enron to sell energy futures on a deregulated
basis, which helped lead to the California energy crisis the following
year and the subsequent collapse of Enron.
But another portion of the bill deregulated these financial
instruments called swaps. And one reason I understand this is
because Nomi explained it to me some time ago. These are instruments
that are created by investment houses and securities firms, and
theyre basically bets that cover their investments. So they get them
from another firm, so if an investment they have is going to go south,
going to tank, they can collect on this so-called insurance policy
from somebody else. The problem is that these swaps, thanks to Phil
Gramms bill, are totally, totally unregulated, and the swap market is
something like now about four times the size of Wall Street, in terms
of securities that are regulated. And it really turned a lot of the
economy into a secret casino, all this action going back and forth,
people betting on bets.
And how this related to the subprime crisis is, about this same time,
you know, securities firms started bundling all these bad or risky
mortgages and securitizing them, and then they would sell these
securities or buy them and then buy swaps or sell swaps to cover the
possible loss. So it really enabled a lot of firms to go hog wild on
the subprime stuff and haveand the brokers who are doing this have no
worry about losing, because they were passing on the possible risks of
loss to somebody else who never really had to have the assets to cover
those losses. And this is all sort of taking place off the books.
When UBS, which is the biggest Swiss banking company, lostI dont
know, I forget the number now$38 billion or so on the subprime
crisis, it put out an internal report for public consumption
explaining how this had happened, and they noted that it had happened,
in part, because the securities that they lost money on, connected to
these subprime loans, had been backed by their trading in swaps.
So here they were saying, We were able to do this because of these
unregulated swaps, which some people at this communityCommodity
Futures Trading Commission had wanted to regulate. And they were the
lobbyists who went tothe financial industry lobbyists who went to
Phil Gramm and said, Listen, weve got to have these swaps
unregulated. They convinced Larry Summers, who was Treasury
secretary. They convinced Alan Greenspan. And even though the bill was
pronounced dead weeks before Phil Gramm did anything, he still managed
to slip it through, get it passed by Congress when no one was looking,
and no one even read it. You know, no one knew what was in this bill.
And then the swap market took off, which helped lead to the subprime
crisis.
And so, youd think that a guy who did that and also gave us the Enron
loophole would now be persona non grata in Washington and in the world
of high finance. Well, if you thought that, youd be wrong, because
Phil Gramm went on to become a lobbyist and a high-paid executive at
UBS, that same Swiss banking firm that lost tens of billions of
dollars on the subprime crisis. And as I mentioned earlier, hes in
line now for a high position in a McCain administration. So, you know,
you talk about failing upwards, Phil Gramm is a great example of the
market not working. Somebody who has failed so grandly as Phil Gramm
should be driven out of the market. He should be considered a bad
product, laissez faire. But instead, because hes pals with John
McCain and has been for a long time, hes in line to make these
mistakes and do harm to the economy and to all of us yet again.
AMY GOODMAN: You also mention, David Corn, that Enron was a family
affair, including his wife, Wendy Gramm.
DAVID CORN: Yes, well, and a lot of this can be complicated, and let
me just tell people, if they want to, they can read the story I wrote
for Mother Jones at motherjones.com and just go to the home page and
click on my box, and it will come up.
But Wendy Gramm, the wife of Phil Gramm, had worked at the Commodity
Futures Trading Commission, the CFTC, in the years prior to this and,
at the urging of Enron, had passed a regulationnot a law, but a
regulationthat had begun the deregulation process for Enrons energy
commodities. And oncewhile she was doing that, Phil Gramm was
getting, you know, tens of thousands of dollarsI think ultimately
ended up being a couple hundred thousand, if not a million or soin
Enron-related contributions. And then Wendy Gramm passes this
regulation.
About four, five, six weeks after she does that, she leaves the CFTC
to go into private business, and guess which board of which
corporation she ends up sitting on. Enron, of course. And in the next,
you know, couple of years, she and her husband, Phil Gramm, because
hes a beneficiary of this, received hundreds of thousands of dollars
in direct personal payments from Enron. So it truly is a family
affair, and its something that people are appalled about. In fact,
you know, even now, Congress isand the Senate is working on closing
what they call the Enron loophole brought to us by the Gramms.
AMY GOODMAN: Were going to come back to this discussion. David Corn,
now Washington bureau chief of Mother Jones magazine, and Nomi Prins,
who has just written a piece on the crisis that were talking about
today, well be back with them both in a minute.
[break]
AMY GOODMAN: Our guests: David Corn of Mother Jones magazine and Nomi
Prins. Shes written two books. Shes with Demos. Her latest book is
called Jacked: How Conservatives Are Picking Your Pocket.
The Senate is considering this week a bill that would deal with the
issue of foreclosures for some 400,000 Americans. What about this?
Whats your assessment of it?
NOMI PRINS: It goes back to a situation where the Senate is trying to
band-aid a crisis that the Senate effectively, and the rest of
Congress, helped to create by things that David was talking about in
terms of making it difficult to understand what is going on. Every
single bit of financial deregulation makes it impossible to understand
whats going on.
So what the Senate is now discussing is a bill that will help 400,000
or so families in terms of facing a foreclosure and being able to
renegotiate their mortgage payment and the balance of their mortgage
down, because the market has gone down and they have also had their
rates go up in their face. So, basically, to make up that difference
they cant pay for, the Senate is coming in and saying, You know
what? Heres $300 billion to the Federal Housing Association, and they
will be able to effectively insure those mortgages to the lenders.
In effect, it will help people, but it is also, to a large extent, a
lender bailout, because its basically saying to lenders, You know
what? Instead of you having to foreclose on a loan and deal with
selling it in this market and whatever problems might occur because of
that, were actually going to guaranteewere going to effectively
government-guarantee the loan to you, if you chooseand this is
voluntary on the part of lendersif you choose to renegotiate down
the balance of that mortgage with your borrower. Thats effectively
what is going on in the Senate right now. It will help some borrowers.
It does not change the lending landscape, and it does not make lenders
have to come to the table and change the terms of the loans that were,
in many cases, abusive or slightly predatory or obtuse, to begin with.
AMY GOODMAN: The Federal Reserve chair, Ben Bernanke, also said the
Fed might extend its unprecedented lending program to the largest
investment banks into next year and has urged lawmakers to increase
the central banks regulatory powers.
NOMI PRINS: Well, right. This is a thing where the Fed screwed up and
knew it was screwing up while it was screwing up. Bernanke said in
2006 the housing market might be soft. He said in the beginning of
2007 that it is a problem, although it wont drag down the rest of the
general economy. Hes had chances to do things along the way and
hasnt.
So now the solution is to give the Fed more power to (a) extend money
out to the banking system that abused the money that they had to begin
with, in terms of leveraging it into the types of things that David
Corn was talking about, in terms of swaps, in terms of subprime types
of instruments, and its saying, You know, were going to help you,
the banking system, get through the mess you created. And you know
what? We want more power to basically regulate you in the future,
because we didnt do it enough to begin with during the last few years
while all of these problems were brewing.
AMY GOODMAN: Let me ask you, David Corn, Phil Gramm wrote a piece
endorsing John McCain last year. In it, he said about John McCain, I
believe the man we need to meet the mortal need today is here. He is
experienced, but has not lost his common sense or his ability to be
outraged. His conservatism is not the result of a studied philosophy,
but of common sense and personal observation. His name is John McCain.
He might not be the right president for all times, but he is the right
president for these times. And he particularly highlighted his
willingness to not raise taxes or repeal the Bush tax cuts, but to
restrain our spending habits.
DAVID CORN: Well, you know, sycophants go pretty far in Washington to
praise people who might be in a position to reward them. And, you
know, thats what that piece was, that was basically, you know, Phil
Gramm auditioning for a job in the John McCain administration.
You know, to take a step back from all this, I mean, there is Phil
Gramm talking about conservatism and conservative principles. At the
same time, you know, Nomi describes the system we have, which is not a
conservative system. This is not really a free market system. We have
these, you know, institutions that want to be freefinancial
institutions that want to be free of regulations and have no
transparency and do whatever they want in order to, you know, pursue
their own profits. But then, when things go awry, they come running to
the federal government, you know, for backup, for support. Well, we
cant let Bear Stearns fail, because then all these people will lose
their jobs, and well have a domino effect.
And, you know, Im not saying that theyre wrong in that regard, but
its the taxpayer who ends up being screwed in the first place, who
then, you know, they come to to prop them up without really offering
much in terms of a stake-holding share in whats going on. They dont
come forward and say, Were going to be more transparent now. They
dont come forward and say, Were going to end our predatory
practices. And, you know, we have few in governmentyou know, we have
some, but notbut certainly not in the John McCain-Phil Gramm
campthat says, OK, well, were going to help you out, but were
going to demand that you act more responsibly, and were going to
demand that you let us see what youre doing.
This comes close to being a national security issue. If you have, you
know, financial institutions, on which the country depends for its
financial health, engage in all sorts of practices that we cant
seeyou know, these swaps that I mentionedits sort of like the dark
matter of the universe. You know, theres stuff going on out there
that we have no ideamaybe Nomi does, to some extent, but most
citizens dont. Our elected representatives, except for the few who
serve on the Banking Committee, dont understand this stuff. Former
Secretary of Treasury Rubin, you know, has claimed that he
couldntyou know, at the beginning, he couldnt understand the
subprime crisis.
And yet, you know, we end up beingthe taxpayers collectivelythe
sucker pool at the end of the day to try to bail these people out or
give them better credit. And some of that helps, you know, people who
are facing foreclosure and who need loans, but a lot of it is done at
a pretty low price in terms of what these institutions and firms and
industries have to give back.
AMY GOODMAN: Nomi Prins, what has to happen today?
NOMI PRINS: Well, what has to happen today is we need to create
transparency and accountability in the system, and it has to be
enforceable, and it has to be mandatory. Lenders cant voluntarily
choose to now go back and help out and make borrowers the culprits and
have them do the legwork. It has to be mandatory. Disclosure has to be
mandatory. The Enron loophole that David was mentioning, it has to be
closed. You cant have exchanges with trillions of dollars of
contracts and trades going through thenot only cannot human people on
the regular street understand, but Congress doesnt understand, the
Fed doesnt understand.
You have to create a situation where every single transaction is
transparent, and if it goes outside of certain enforceable legislative
enacted parameters, it has to be taken apart, and it hasand the
people who are trading or doing whatever it is they are doing have to
be responsible for the mess they create, because this situation is
Wall Street and lenders basically going back to the federal
government, like David was talking about, and asking for help to get
them out of the mess that they themselves created, and the federal
government and Congress not stepping back and saying, You know, were
not just going to help a few homeowners right now. We need to change
the entire system. We need to make it transparent. We need to make the
legislation enforceable. And we need to bring some control into whats
going on and understanding of what we need to be looking for.
AMY GOODMAN: Well, Nomi Prins, I want to thank you for being with us.
Nomi Prins is at Demos. Her books are Jacked: How Conservatives Are
Picking Your Pocket and, before that, Other Peoples Money. David Corn
is the Washington bureau chief of Mother Jones. His latest piece is
called "Foreclosure Phil.