Would You Really Buy a Mortgage From John McCain?

He's back! In Aspen last week, John McCain gazed into Phil Gramm's eyes and said, "Thank you Phil, for all your friendship and support." For years, Gramm has been the economics lobe of McCain's brain -- and it seems he is still mighty proud of the fact. This is shocking -- not because Gramm called Americans a nation of "whiners," but because more than any other politician, he caused the Enron implosion and the credit crunch.

McCain has said: "The issue of economics is not something I've understood as well as I should... To be honest, I know a lot less about economics than I do about military and foreign policy issues. I still need to be educated." This is a man who can't tell his Sunni from his Shia, and who opposed the Northern Ireland peace process as a capitulation to terrorism. And he admits he knows even less about the economy than that. On one occasion, he let his irritation with the subject slip by referring to it as "the credit cunt."

But when he is forced to talk about the economy, McCain has always given the same answer: "I rely on the circle I have developed over many years -- people like Phil Gramm." He has Herbert Hoovered-up his slivers of economic theory from this man -- but who is Gramm? Until he briefly sputtered into the headlines over his "whiners" gaffe, few had cared to look.

Phil Gramm is an ornery old ex-Texas senator who seems to have swooped out of the most scathing H L Mencken sketch. He became McCain's "best friend in politics" -- and started speaking to him every day - when they linked arms to stop Hillary Clinton's 1993 push to extend healthcare to poor Americans. He calls for "ruthlessly" slashing government spending -- but only focuses on spending on the poor. When he was told paying for healthcare plunged many 80-year-olds into poverty, he said: "Most of us don't have the luxury of living to be 80 years-old, so it's hard for me to feel sorry for them."

Later, one of those very 80-year-olds approached him because she was terrified she wouldn't be able to pay her medical bills. Gramm laughed and told her to find herself a rich husband. He chuckled: "People say I don't have a heart. I do. I keep it in a quart jar on my desk."

This chuckle-headed ideological fanaticism nearly brought the global economy down with it -- twice. How? Gramm says government regulation of the economy is "akin to communism," and must be destroyed. His first great step towards this goal came in the 1990s, when he championed and pushed through the law that exempted Enron from both government regulation and public disclosure, on the grounds these were "unacceptable fetters on the free market." Enron was his biggest campaign contributor, and employed his wife to the tune of a million bucks.

So thanks to Gramm, nobody was watching over Enron anymore. As a result, they embarked on a massive program of fraud and pillage. After taking over the electricity market in California, they deliberately engineered blackouts in entire cities to drive up the price for power. In a surreal move, Gramm blamed "environmental extremists" -- the nearest bogeyman to hand -- even after it was proven Enron execs had paid the power plants to "get creative" in turning out the lights.

Gramm learned from the Enron scandal -- to go further and push harder. He turned his attention (and his fund-raising) to the mortgage companies. Since the 1930s, there had been an unwritten deal in US politics: the government would rescue the banks if they grew sick, but in return the banks had to take the sensible medicine of regulation. Gramm thought this was "crazy": why would banks ever need to be rescued in a free market?

So -- as the brilliant Mother Jones magazine exposed -- in 2000, while everybody was riveted by the Gore vs Bush stand-off in Florida, Gramm slipped into a vast 3,000-page bill his own creation. It was 268 pages radically deregulating the banking system. A legal textbook later called this "a stunning departure from normal legislative practice"; few lawmakers noticed it was there when they voted. Suddenly, the roles that had been reserved in the US for regulated banks were handed over to a vast network of unregulated financial institutions called the "shadow banking system." They began to offer wildly unsustainable mortgages to the poor at supersonic interest rates. Through accountancy-acrobatics, they then bundled these risky loans into exotic packages of derivative commodities, hoping nobody would notice.

All this was only legal because of Gramm's legislative footwork. He swiftly moved on from the Senate to a megabucks job at UBS, one of the banks raking in billions from his changes.

Within a few years, the entire system began to collapse without the support beams of state regulation. Sub-prime mortgages predictably fell apart, with 2 million Americans -- mostly black and Hispanic -- facing repossession. The state has had to step in with a much heavier hand than before - and even that will not prevent a recession now.

The billionaire Warren Buffet pointed out that Phil Gramm has twice tossed "financial weapons of mass destruction" into the US economy. Yet instead of shunning him, McCain made Gramm the co-chair of his presidential campaign, and hinted he might make him Treasury Secretary. McCain -- the supposed scourge of buying influence - was even happy for Gramm to be simultaneously a paid lobbyist for the mortgage industry and helping to write his speeches about the mortgage crisis. The Gramm-grip on McCain's policies shows: incredibly, the wannabe-president responded to the credit crunch caused by deregulation by calling for even more deregulation.

The biggest question in US politics should be: would you buy a mortgage from this man? But it's a sign of how shallow the media coverage is that Gramm's ideological fanaticism passed almost without comment; he only became an issue when he made a silly verbal gaffe, claiming America is only in a "mental recession". (In CEO-Land, this is true: they are walking away with $100m bonuses from their failures.) Only then did McCain distance himself.

It seems that for this putative President, causing two major economic crises is fine - but speaking about them crudely is a step too far, to be punished by a few weeks in exile. Now the punishment period is over, and McCain is publicly Gramming-up for the cameras again. If you liked the credit crunch, you'll love McCainomics.

To read an archive of Johann Hari's columns for the London Independent, go here.

Comments

[kimofAZ]

Thank you for this article. Yes, I knew Gramm was a bad advisor but I didn't know the reasons behind it. I agree with the person that posted above....Now, I have a clearer picture of the facts and will SPREAD the word! We can't rely on the media so we need to make sure we do our DUTY to our fellow Americans. People are hurting and we need it to stop! McCain will only make their pain worse and I won't stand around idle and watch them do it. At least I know I did something to help.....PROVIDE ACCURATE DATA TO HELP IN THEIR DECISION MAKING!

[ofbbg]

I might not buy a mortgage from this guy, but I'd be proud to be his wingman any day!

[metalpipe]

I hope you are being sarcastic, unless of course you're into crashing; a lot.

[adamsmith]

Correct me if I'm wrong, but wasnt' Herbert Hoover a Progressive Democrat who switched party affiliation just before the election to win????

[yaworsja]

I don't know, but he was the Great Engineer, aka social engineer, aka liberal.

[yaworsja]

You libs really need to learn your history.

This elementry school narrative of Hoover being a free-marketer is sheer nonesense. He was the first president to be an extreem activist when it came to medeling with the economy, which made the Great Depression as bad as it was.

"People are entitled to their own opinions, not their own facts." In other words, if liberals knew the facts, they would share our opinions. Keep clinging to your comforting but bogus historical narratives and you will continue to be a joke to the rest of us.

[lbrillante]

The main stream media is giving a free ride to Senator McCain and his 'friends' (I assume they are who he is really speaking to when he says 'my friends', which I find grating iike a fork on a chalk board). It is reprehensible.

Graham is an economic disaster. McCain's economic policy is a disaster. And the McCain camp will always accuse the other guy of doing what they are 'actually' doing.

I think we have to start turning out attention to the election and how we can facts out to people who are NOT on the internet and to see what we can do to help make this election fair. Voter supression and vote tampering are things I am concerned about his election. Project Vote is one organization that is working on this. I am still researching to find others. How can we validate election results. If we can pick 'the day of the election precincts to 'fact check' based on private citizens with republican and democrats, independents all witnessing the same information, would it be possible around the country to 'fact check' at least the presidential part of the election results?

[terramartom]

You are absolutely right that the media has failed miserably to inform the public. Sadly enough it is not by mistake but by intentions to keep information about the cast of thieves running the country secret because the media has also been highly paid to do so. At least the owners of the media that is. How is it that we know Bush and Cheney lied to start a war and nothing is done? How is it that we know Gramm orchestrated the energy and bankning mess and nothing happens to him? McCain still has the "Keating 5" scandel from the 1980's attached to his performance and it is all but forgotton.

[ApolloSpeaks]

McCainiani­sm=Hooveri­sm? Don't make me laugh! Wasn't it Hoover who stupidly raised taxes during a recession and created the Great Depression?

[metalpipe]

The depression was caused by wild speculation and fraud; akin to the oil pricing we are presently living with now. I'm guessing Hoover needed to shore up the US bankroll, as opposed to starting a war he couldn't afford and throwing the nation into an unrecoverable debt. (see BushCo).

[Huffingtonposter231]

I guess now that Obama is dropping any pretense of being "change" and "different politics" and is wildly smearing McCain it's now open season on McCain from all Obama supporters.

So much for "change we can believe in". You folks lost your "higher ground" and "different politics" very early in the game as I recall.

[vippy]

What does it take for some to wake up? This is not about Obama or McCain, it is about our
well being and future. So what is the question again?

[badtimes]

The rhetoric may be heated but this is hardly a smear. Gramm did insert the Enron loophole while his wife was on their board. Enron did manipulate electricity supply in California, to the detriment of the public there. And Gramm did go to work for UBS after pushing through banking deregulation.
If JSM is going to use Gramm as his economic adviser, then everyone needs to know about Gramm.

[metalpipe]

How was Obama injected into this conversation? Phil Graham has been an accident waiting to happen to McSame for a year now. It's all true, with only his denial of wrong doing to shore him up.

By the way, the author should at least spell the guy's name correctly if he is going to go after him.

[metalpipe]

I just did a bit of Googling, and it appears there is an easy mix up between Phil Graham and Phil Gramm. They actually seem to be the same person.

[gdaerin]

So Phil Gramm is responsible for Enron and the mortgage crisis and McCain wants to make him treasury Secretary?

WOW! Mccain is really going to make it this easy?

[dadw5boys]

Wow Finally soeone writes an article about Graham after we have been screaming about this for 5 years.

[BGP]

It is not Graham, it is Gramm. Two different Senators.

[nancyhopeful08]

Thank you for putting this info together in a way that's easy to connect the dots with regard to Gramm. I remember Keith Olbermann covered this, but that's about the only other place I've heard anything about it. This is something everyone should know about before voting. I canvass for Obama in Indiana and this will give me some economic information to share. I'll add it to my ever growing list.

[vippy]

I want to know who in this country was hiding their money in the Bank of Liechtenstein? How come every other country published the names except for the USA. I bet our politicians are in it
and a lot of those folks who scream their taxes are too high. Why is this not in the news?

[bascombe]

it's called unbridled greed, not idealogical fanaticism. gramm and his masters are just fanatically greedy

[BGP]

Who exactly are his masters? The evil neocons? Please be clear in your writing when you attempt to smear someone.

[MajorKong]

Phil Gramm on his economics team and Bill Kristol on his foreign policy team? Is McCain trying to make Bush look moderate by comparison? Yikes!

[BEHM777]

Since the MSM won't do its job, it is up to us to continue to spread the word about Gramm. I think I'll fire off a letter to the editor of my favorite news rag tomorrow.

BEHusseinM777