Monday, September 15, 2008

Obama vs. McCain on Gramm-Leach-Bliley

Instead of finding the right level of government oversight in a vibrant free market, we’ve let the special interests set the agenda. Changes in the financial landscape, driven by technology and globalization, made the 1930’s era Glass-Steagall Act – the New Deal era law that required that investment banking be kept separate from commercial banking – increasingly inefficient. While reform was desirable, the banking, insurance and securities industries spent over $300 million lobbying Congress to shape that reform to meet their own interests. In the two years before Glass-Steagall was repealed in 1999, financial service industries gave $58 million to congressional campaigns; $87 million to political parties; and spent $163 million lobbying Washington. But though the regulatory structure was outdated, the need for oversight was not. Unfortunately, in the rush to repeal the law to create immediate opportunities for certain Wall Street firms, little effort went into modernizing the government’s supervision of the financial industry – to guard against the potential for conflicts of interest, to insist on transparency, or to ensure proper oversight of new and complex financial products or the dramatic rise of investment banks and non-bank financial institutions, like hedge funds and Structured Investment Vehicles. Nearly a decade later, our financial markets—and everyday Americans—are paying the price.
That's part of Obama's campaign statement (pdf) released when he gave his speech on financial regulation last March.

The repeal of Glass-Steagal that he refers to was part of the Gramm-Leach-Bliley Act, which brought about a significant deregulation of the financial market. It was the signature legislative accomplishment of then-Senator Phil Gramm, who is one of McCain's chief economic advisers (the one who said that the problem with the economy is that the U.S. is a "nation of whiners.") Gramm retired at the end of that term and promptly took his payoff in the form a job as lobbyist for one of the investment banks that had pushed for the act.

The Gramm-Leach-Bliley Act passed the Senate, by the way, 54-44 on a nearly party-line vote. Senator Joe Biden voted against it. John McCain voted in favor.

As recently as last March, McCain didn't have any regrets. His prescription for dealing with the crisis at that point was even to push for even more deregulation (!) and to convene a meeting of accountants. Today, as the financial markets tank, more than nine years after he voted for the deregulation act championed by his lobbyist-adviser, McCain is suddenly parroting Obama's call for reform. The problem with this stance is that the guy who would be writing the new financial regulations in a McCain administration would be Phil Gramm! This would be like inviting the fox inside the henhouse to watch over a new batch of chickens, while he still has feathers stuck in his teeth from the last batch of hens he devoured.


Anonymous said...

So why do we not hear more about McCain's questionable involvement with Phil Gramm and Gramm-Leach-Bliley?

Seems to me the news media or even the Obama campaign would jump on this. Perhaps Obama is waiting until closer to the election?

Please offer your opinion.

Anonymous said...


The final vote was 339 for, 79 against, and 20 not voting. The "nays" include names well-known today: Dennis Kucinich, John Dingell, Nancy Pelosi, and John Lewis. Kucinich spoke only briefly to enter an article against the bill into the record. Dingell, Pelosi and Lewis did not speak.

Current Presidential candidates who voted "yea" are John Edwards and Joe Biden.

This is taken from :

Don Pedro said...

Ack, blogger just ate my comment.

Quick response: yes, Biden voted against the original bill but then voted for the conference version.

I think the reason Obama hasn't brought this up more pointedly is that if he did McCain would say "Clinton signed it. You're criticizing Clinton!" While not a relevant point, this would probably negate Obama's advantage in bringing it up. Much better to do what he's doing--just say that the crisis is 8 years of neglect and Republican mismanagement, and McCain would be more of the same.

James said...
This comment has been removed by the author.
James said...

Don Pedro,

I strongly disagree with your analysis. You are arguing based on a post hoc ergo propter hoc fallacy. Try comparing the number of bank failures a decade before Gramm-Leach-Bliley with the number of bank failures a decade after.

Furthermore, the rescues of Bear Stearns and Merrill Lynch would have been impossible under Glass-Steagal, because commercial banks were not allowed to merge with investment banks. It has been the undiversified financial institutions that have been collapsing, not the diversified ones. Diversification makes it easier for a financial institution to weather a financial storm, and diversified financial institutions were illegal before Gramm-Leach-Bliley.

The primary cause of our current financial problems is that the Federal Reserve failed to do anything to halt the growth of the housing bubble. Even if Alan Greenspan couldn't have stopped the bubble with its traditional tools, he could at least have pounded on a table and told Congress that people buying homes at such inflated values would lose significant amounts of money.

Anonymous said...

Please also mention the Commodity Futures Modernization Act, snuck into the appropriations bill by Gramm in Dec 2000--right as congress was leaving for Christmas. My understanding is that this bill paved the way for widespread "offbook" credit swaps which encouraged irresponsible lending and, because the swaps and speculation on them were then listed as assets, it creates a much bigger catastrophe when these mortgages start to default.

Anonymous said...

This is a very simple issue for the American people to grasp:

The lack of strict depression-inspired regulation of financial institutions means a giveaway to the bankers. Fox, hen house, yada, yada.

With that being said, those who contributed to our endless financial disaster need to be openly identified and held up to many critical eyes.

1) PHIL GRAMM (again, duh) and the Gramm-Leach-Bliley Act, as well as his intimate ties to John McCain

Obama needs to hit *hard* on the so-called McCain economic plan (read: GRAMM-MCCAIN economic plan).

Don't stop until everyone thinks of McCain and Gramm as siamese twins.

2) The KEATING FIVE and McCain's deep involvement in this scandal

3) The associated S&L SCANDAL

Does anyone think that the Keating Five and the S&L Scandal are not relevant now?

Wake up and smell the stink.

P.S. Forget Palin -- she is a (psychological) vampire and should be avoided at all costs.

E. Z. said...

And just to add a juicy little note: How come nobody's talking about the failure of Nevada's Silver State Bank. The 11th federally insured bank to go belly-up this year. One of its directors and one of three that formed its Audit Board and who left for "personal reasons" on July 26 was Andrew McCain. Mr. McCain The Son is currently Chief Financial Officer of Hensley&Co and recently accepted the post of President of the Phoenix C of C.

Silver State wasn't a run-of-the-mill deposit and loan affair but specialized in construction and land development loans. And the lucky Mr. McCain left his post four days before he would have had to sign off on the bank's 2nd quarter financial statements and three weeks before the statements had to be revised to reflect a $72.3 million loss that had been under-reported in the original. The bank had also been notified that, because of its liquidity problems, its insurer planned to cancel the bank's personal liability policies, making each of its directors and executives open to suits.

Good timing, Andy!

Anonymous said...

Why isn't Phil Gramm considered an economic terrorist or an enemy combatant? Wasn't he the chief architect of the demise of America's financial solvency.

Anonymous said...

The final bill resolving the differences was passed in the Senate 90-8-1 and in the House: 362-57-15. This veto proof legislation was signed into law by President Bill Clinton on November 12, 1999. AND BIDEN VOTED YES JUST LIKE MCCAIN!

DianeDem said...

Obama should zero in on this.
The bill was passed because a NO VETO CLAUSE was in it...see below:

The bills were introduced in the Senate by Phil Gramm (R-TX) and in the House of Representatives by James Leach (R-IA). The bills were passed by a 54-44 vote along party lines with Republican support in the Senate[1] and by a 343-86 vote in the House of Representatives[2]. Nov 4, 1999: After passing both the Senate and House the bill was moved to a conference committee to work out the differences between the Senate and House versions. Democrats agreed to support the bill only after Republicans agreed to strengthen provisions of the Community Reinvestment Act and address certain privacy concerns.[3] The final bill resolving the differences was passed in the Senate 90-8-1 and in the House: 362-57-15. This veto proof legislation was signed into law by President Bill Clinton on November 12, 1999. [4]

Anonymous said...

I believe McCain was the only Senator who did NOT vote on the final bill. Also, "Leach" in the Gramm-Leach-Bliley, is an OBAMA supporter.