Published on
Mother Jones

McCain Blasts Wall Street Failure, Neglects To Mention His Adviser Helped Cause It

David Corn

If McCain wants to hold someone accountable for the failure in transparency and accountability that led to the current calamity, he should turn to his good friend and adviser, Phil Gramm. (Timothy A. Clary/Getty Images)

As the news broke of the Lehman Brothers meltdown and the rest of the latest financial crisis, John McCain, speaking at a campaign rally in Florida on Monday, angrily declared,

We will never put America in this position again. We will clean up Wall Street. This is a failure.

And in a statement released by his campaign, McCain called for greater "transparency and accountability" on Wall Street.

If McCain wants to hold someone accountable for the failure in
transparency and accountability that led to the current calamity, he
should turn to his good friend and adviser, Phil Gramm.

As Mother Jones reported
in June, eight years ago, Gramm, then a Republican senator chairing the
Senate banking committee, slipped a 262-page bill into a gargantuan,
must-pass spending measure. Gramm's legislation, written with the help
of financial industry lobbyists, essentially removed newfangled
financial products called swaps from any regulation. Credit default
swaps are basically insurance policies that cover the losses on
investments, and they have been at the heart of the subprime meltdown
because they have enabled large financial institutions to turn risky
loans into risky securities that could be packaged and sold to other

Lehman's collapse threatens the financial markets because of swaps. From Bloomberg:

Bond-default risk soared worldwide as the collapse of
Lehman Brothers Holdings Inc. sparked concern than the $62 trillion
credit-derivatives market will unravel....

Lehman, the fourth-largest securities firm until last week,
has been one of the 10 largest counterparties in the market for
credit-default swaps, according to a 2007 report by Fitch Ratings. The
market, which is unregulated and has no central exchange where prices
are disclosed, has been the fastest-growing type of so-called
over-the-counter derivative, according to the Bank for International

"The immediate problem is the derivative default swaps
market, in which a plethora of institutional accounts and dealer
accounts are at risk,'' Bill Gross, manager of the world's largest bond
fund at Pacific Investment Management Co. in Newport Beach, California,
said in an interview with Bloomberg Radio yesterday. "It induces a
tremendous amount of volatility and uncertainty.''

Barclays Capital analysts have estimated that if a financial
institution with $2 trillion in credit-default swap trades were to
fail, it might trigger between $36 billion and $47 billion in losses
for institutions that traded with the firm. So the Lehman
fiasco--caused in part by the use of unregulated swaps--could lead to
ruin elsewhere in the economy.

Gramm is responsible for the rise of the wild and woolly $62
trillion swaps market. And he was chairman of the McCain campaign and a
top economic adviser for McCain--until he dismissed
Americans worried about the economy as "whiners." After that comment,
McCain dumped Gramm. But was Gramm truly excommunicated from McCain
land? Last month, he attended
a meeting of McCain's top supporters in Aspen, Colorado. And at a
dinner that day, McCain singled out Gramm for praise. Last week, failed
Republican presidential candidate Ron Paul revealed
that Gramm, now an exec for Swiss banking giant UBS (which also lost
billions of dollars due to subprime loans and swaps), had recently
called him as part of a McCain effort to win Paul's endorsement. Paul
turned Gramm down. (Both Gramm and Paul are Texas Republicans.) Gramm's
Paul-courting effort seems to indicate that the fellow who has done
much to cause the current financial troubles (and who was once
considered a possible Treasury secretary should McCain win the White
House) is back in the good graces of the McCain campaign.

Shortly after McCain promised he would "clean up" Wall Street,
Alaska Governor Sarah Palin, his running mate, appeared at a Colorado
rally on Monday morning and proclaimed that "John McCain and I will put
an end to the abuses in Washington and Wall Street that have resulted
in this financial crisis." She promised a McCain administration would
"reform the way Wall Street does business." (She was short on details
and spent more time discussing Colorado sports stars from Alaska.) What
neither she nor McCain has explained is how they plan to be able to
reform Wall Street when they are being assisted by 177 lobbyists
and the guy who greased the way to the current crisis with a backroom
legislative maneuver. If McCain and Palin are serious about never
putting America "in this position again," they ought to consider
seriously writing down any economic advice they get from Phil Gramm.


This is the world we live in. This is the world we cover.

Because of people like you, another world is possible. There are many battles to be won, but we will battle them together—all of us. Common Dreams is not your normal news site. We don't survive on clicks. We don't want advertising dollars. We want the world to be a better place. But we can't do it alone. It doesn't work that way. We need you. If you can help today—because every gift of every size matters—please do.

Share This Article

More in: