The Enron Loophole, Phil Gramm, and McCain's Bankrupt Economic Policy
by animated, Sun Jun 22, 2008 at 10:20:03 AM EDT
The Obama campaign indicated today it will push an issue that was the subject of a Countdown report last week, the so-called "Enron Loophole" and it's ties to top McCain adviser, Phil Gramm. According to The Politico, the Obama campaign accused McCain campaign co-chair and economic adviser Phil Gramm of pushing the deregulations that have allowed speculators to game the system and drive up the price of oil.
The Texas Observer has a great write-up on what happened:
In the early evening of Friday, December 15, 2000, with Christmas break only hours away, the U.S. Senate rushed to pass an essential, 11,000-page government reauthorization bill. In what one legal textbook would later call "a stunning departure from normal legislative practice," the Senate tacked on a complex, 262-page amendment at the urging of Texas Sen. Phil Gramm.
There was little debate on the floor. According to the Congressional Record, Gramm promised that the amendment--also known as the Commodity Futures Modernization Act--along with other landmark legislation he had authored, would usher in a new era for the U.S. financial services industry.
"The work of this Congress will be seen as a watershed where we turned away from an outmoded Depression-era approach to financial regulation and adopted a framework that will position our financial services industry to be world leaders into the new century," Gramm said.
Watershed indeed. With the U.S. economy now battered by a tsunami of mortgage foreclosures, the $30-billion Bear Stearns Companies bailout and spiking food and energy prices, many congressional leaders and Wall Street analysts are questioning the wisdom of the radical deregulation launched by Gramm's legislative package. Financial wizard Warren Buffett has labeled the risky new investment instruments Gramm unleashed "financial weapons of mass destruction." They have fed the subprime mortgage crisis like an accelerant. While his distracted peers probably finalized their Christmas gift lists, Gramm created what Wall Street analysts now refer to as the "shadow banking system," an industry that operates outside any government oversight, but, as witnessed by the Bear Stearns debacle, requiring rescue by taxpayers to avert a national economic catastrophe.
While the nation's investment bankers are paying a heavy price for their unbridled greed (in billions of dollars of write-offs), Gramm has fared quite nicely. He currently serves as a vice president at UBS AG, a colossal, Swiss-owned investment bank, the post, no doubt, a thank you for assiduously looking out for Wall Street interests during his 23 years in public office. Now, with the aid of his longtime friend Arizona Sen. John McCain, Gramm may be looking at a quantum leap in power and influence.
But even more damning are Gramm's intimate ties, through his wife, Wendy, to Enron, whose mainpulation of the markets was made possible by Gramm's bill:
In an apparent response to a 1992 plea from Enron, Dr. Wendy Gramm, then chair of the federal Commodity Futures Trading Commission, moved to exempt the company's energy-swap operation from government oversight. By then, the Houston-based Enron was a major contributor to Senator Gramm's campaign.
A few days after she got the ball rolling on the exemption, Wendy Gramm resigned from the commission. Enron soon appointed her to its board of directors, where she served on the audit committee, which oversees the inner financial workings of the corporation. For this, the company paid her between $915,000 and $1.85 million in stocks and dividends, as much as $50,000 in annual salary, and $176,000 in attendance fees, according to a report by Public Citizen, a group that has relentlessly tracked Enron, which in turn has called the report unfair.
Meanwhile Enron had become Phil Gramm's largest corporate contributor--and according to Public Citizen, the largest across-the board donor in its industry. Between 1989 and 2001, the company tossed Gramm just under $100,000.
In 1998, Wendy Gramm cashed in her Enron stock for $276,912.
So where is Gramm today?
Gramm serves as co-chair of the McCain 2008 presidential campaign. As one of the candidate's chief economic advisers, he is mentioned as a possible secretary of the treasury in a McCain administration.
Gramm and McCain became friends when they worked together to defeat the original Clinton health care effort. Gramm was instrumental in helping bail out McCain when his campaign went bankrupt last July. Fortune magazine calls him McCain's "econ brain." And now, he will apparently hold huge sway on economic policy in a McCain administration.