Six degrees of Phil Gramm

By Laurie Bennett

January 8, 2010 at 8:43am

Here’s a twist on the Kevin Bacon drinking game: How many financial crises can you link to Phil Gramm?

According to his critics, the economic collapse of 2008 had Gramm’s name all over it. (Mother Jones called him a “lead perp.”)

A staunch advocate of deregulation, the former senator from Texas was a sponsor of the Gramm-Leach-Bliley Act of 1999, which lifted restrictions on banks, securities firms and insurance companies. The measure, which was viewed at the time as a way of opening up the marketplace, enabled the growth of “too big to fail” firms such as Citigroup and AIG.

Phil Gramm
Phil Gramm

Gramm also sponsored the Commodity Futures Modernization Act of 2000, which exempted most over-the-counter derivatives from government oversight. The provision included language, later known as the “Enron loophole,” preventing regulation of energy trading on electronic commmodity markets.

There’s more.

Through his wife, Wendy, Gramm is linked to another financial disaster - the collapse of Enron. Wendy Gramm served as director of the energy company, which went belly up in 2001, taking thousands of investors and employees with it. The Enron scandal also led to the demise of the accounting firm, Arthur Andersen.

The Enron connection leads to yet another crisis - the 2000-2001 electricity blackouts in California, caused, in part, by price fixing by Enron traders.

Gramm, who left the Senate in 2002, is now vice chairman of UBS AG. The Swiss banking firm was one of the AIG counterparties paid in full after the insurance giant was bailed out by the federal government.

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  • #1.   wunsacon 01.17.2010

    Shouldn’t there be a “tax evasion scandal” box hanging off the UBS box?

  • #2.   Printing Press 01.17.2010

    This is a lame hit-piece. First of all, Wendy Gramm sat on the board of directors of Enron; she was not an executive nor did she have any managerial responsibilities in that company. The Enron cretins running the company (Lay, Skilling, et al) lied to her as well as all the other directors and investors. They were further assisted by the criminal participation of Arthur Anderson, a former “Big Five” accounting firm whose involvement with Enron led to its own demise. This article provides no evidence that Wendy Gramm had any knowlege of or participated in any way with these crimes.

    There’s been lots of talk about reinstating the Glass - Steagall Act as people believe that was the cause of the recent financial meltdown. Yet many commercial banks (e.g. Washington Mutual) suffered tremendous losses even though they had no investment banking activities. Likewise, investment banks (e.g. Bear Stearns and Lehman Brothers) collapsed even though they held no depositor funds. Blaming the crises on the Gramm-Leach-Bliley Act of 1999 is therefore a red herring.

    As for the Commodity Futures Modernization Act of 2000, the primary purpose behind the legislation was to remove the uncertainty of the legitimacy of credit swaps. It was heavily influenced by the Presidential Working Group on Financial Markets (PWG) Report; passed with broad bipartisan support; and was signed into law by Bill Clinton.

    You want a perp? Take a look at Robert Rubin’s map.

  • #3.   Laurie Bennett 01.17.2010

    The idea that directors have no oversight responsibilities is part of the underlying problem.

    Enron board members didn’t simply succumb to misinformation (of which there was an abundance.) They failed to request in-depth financials, to question or investigate Fastow’s side deals, or to call for more stringent supervision by Lay and Skilling.

    Wendy Gramm and other directors bear significant responsibility for what happened to the company, its stockholders and its employees.

  • #4.   Smsm 04.10.2015

    Phil also wrote the now infamous Enron Loophole leisolatgin (The Commodities Modernization Act) that barred all regulation of electronic commodities trading while his wife was a lobbyist for Enron who basically wrote most of the language of the bill.And he’s McCain’s cheif economic advisor. How many ways can you say, 4 more years of what we have endurred for 8 years already ?And for the misinformed, the commodities meltdown couldn’t have happened without Phil’s Enron loophole: that is what removed all auditing and regulation from CDOs, CMOs and all other asset backed bonds that banks were selling off to investment banks via electronic trading. No oversight, no reporting, big meltdown, no suprise.

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