Has anyone among our mainstream political pundits noticed that however this presidential election turns out, the bankers can’t lose?
The bankers I speak of are a strange pair of allies: former Sen. Phil Gramm, a right-wing Texas Republican, who remains an economic adviser for Sen. John McCain, and Robert Rubin, Treasury Secretary for Bill Clinton and now a top adviser for Sen. Barak Obama.
Gramm, who served 24 years in the Congress, retired in 2002 to become vice-chairman and lobbyist for the Swiss banking giant, UBS Warburg. Gramm got in hot water when he suggested the current economic downturn was “psychological” and that Americans were “a nation of whiners.” But he has remained a close McCain adviser and personal friend and is considered a top candidate for Treasury secretary should McCain win.
Rubin, who rose through the ranks to head Goldman Sachs, joined the Clinton administration as head of the National Economic Council and later became Treasury Secretary. He left in 1999 to help run Citigroup, which he now heads and helped create when he was in government. He was replaced by Larry Summers (who had a tumultuous tenure as Harvard’s president) and now both play prominent roles as Obama’s economic advisers.
I recite these backgrounds to illustrate that Gramm and Rubin personify the banking and investment industry’s rather bipartisan interest in this presidential race, for according to the Center for Responsive Politics, the nearly $39 million that the industry has contributed to the candidates has been split almost down the middle, with 55 percent going to Democrats and the rest to Republicans.
But more to my point, before they left government, Rubin the suave Democrat semi-liberal and Gramm, the brittle Republican conservative, joined forces in 1999 to write legislation that repealed that section of the 1933 Glass-Steagall Bank Act that prohibited commercial banks from engaging in other businesses–like selling stocks or insurance–that might create a conflict of interest and risk the money of depositors. The firewall protecting depositors between commercial banks and investment banks, insurance companies and securities firms had been toppled.
The program Frontline in May, 2003, reported that financial companies had spent $300 million lobbying for the repeal, which was held up in a House-Senate conference, until Gramm, the chairman of the Senate Banking Committee warned Citigroup that its chairman, Sandy Weill, needed to get the White House involved. The legislation, the misnamed Financial Services Modernization Act, would permit him to merge Travelers Insurance with Citibank. After Weill’s call, the White House and Rubin agreed to support repeal. According to Frontline, just days later Rubin, who had been tipped by Weill about the impending merger, accepted a top job at Citigroup.
The end of Glass-Steagall helped precipitate the merger frenzy in the financial services industry and has led to the current subprime mortgage meltdown. But Gramm was not done. In December 2000, as the outgoing Clinton administration and the Republican Congress struggled over the budget, Gramm, with the help of the financial services lobbyists, introduced the Commodity Futures Modernization Act, which exempted certain commodity trading, including bundles of subprime mortgages from regulation. Mother Jones, but not the mainstreat media, reported last May that Gramm’s bill was supported by banker Alan Greenspan and Larry Summers.
Thus under these “modernization” acts, banks that had been prohibited from making risky and leveraged investments with depositors’ money were free to play fast and loose with billions. And they did. Banks, mortgage lenders, brokerages and even cities got into trouble buying and selling paper. Citigroup was among the big banks that were staggered by multibillion dollar losses in the mortgage market. UBS is under investigation. The banking system is reeling and even the Bush administration is seeking some re-regulation.
Still, Gramm, Rubin and Summers, among others who have helped cause billions in losses, are advising the presidential candidates, It’s true that Gramm made some dumb remarks, but I would think that reporters covering the campaigns would ask instead about their roles in the demise of one of the pillars of consumer protection, Glass-Steagall, and whether they take any responsibility for the consequences.