Monday, July 14, 2008

The Great Prevaricator Remembered II: With Reagan Policies, Seldom Has So Much Harm Been Done To So Many By So Few (Plus Swipes At Phil Gramm)

By Manifesto Joe

With news of a Bush/Treasury/Federal Reserve bailout of mortgage giants Fannie Mae and Freddy Mac, I'd say it's unofficially official: Reaganomics, and the 30-year era of helter-skelter deregulation that came with it, is at long last dying for good.

No, it's not dead yet. I think terminal brain cancer is a certain diagnosis. Yet Reaganomics lingers, having been reanimated repeatedly from the dead. But I don't think another long-term resurrection is possible.

And as the details of a massive bailout emerge, the person who comes to my mind is that turkey-necked geezer who presided over the first "great" round of deregulation during the '80s -- The Great Prevaricator himself, Ronald Reagan.

Reagan survives largely just in right-wing mythology. But some of his soldiers, who helped him construct this sturdy economic Trojan horse, are still with us. Despite a rebuke over a recent gaffe, former GOP Sen. Phil Gramm of Texas, deregulator extraordinaire, is still John McCain's economic adviser.

Gramm, a Texas Aggie economist (Know how to spoil an Aggie party? Flush the punchbowl), earned his bars in the "conservative" movement as one of The Fibber's hardiest point men. He started in the House as a major architect of the 1981 tax cuts that, first, handed a bonanza to the wealthiest Americans. Then, those cuts plunged the federal budget so deeply into the red that piecemeal tax increases had to be sneaked past the public for many years thereafter to slow the hemorrhaging.

He was also a player in the '80s deregulation of savings and loans, which ultimately opened them up to full-scale looting. It took years, and many, many billions from the taxpayers, to clean up that mess. (Sound familiar now? To paraphrase the poet Santayana, our leaders did not remember the past, and we are ALL condemned to repeat it.)

Near the end of his venal "service" in the Senate, Gramm was a towering figure in the second "great" wave of deregulation. This from Wikipedia:

Later in his Senate career, Gramm spearheaded efforts to pass banking reform laws, including the landmark Gramm-Leach-Bliley Act in 1999, which modernized Depression-era laws separating banking, insurance and brokerage activities. Between 1995 and 2000 Gramm, who was the chairman of the U.S. Senate Committee on Banking, Housing, and Urban Affairs, received $1,000,914 in campaign contributions from the Securities & Investment industry.

Here, "modernize" means that the bill Gramm co-sponsored repealed certain New Deal-era regulations of the Glass-Steagall Act of 1933, which had helped keep those pillars of high finance separate, and hence relatively honest and solvent, since the '30s.

Not content with leaving only this much damage imminent, Gramm helped pull off a major deregulatory coup the following year. More from Wikipedia:

Gramm was one of five co-sponsors of the Commodity Futures Modernization Act of 2000, which critics blame for permitting the Enron scandal to occur. At the time, Gramm's wife was on Enron's board of directors.

A big part of the CFMA was what became known as the "Enron Loophole." Again, Wikipedia:

The CFMA has received criticism for the so-called "Enron Loophole," 7 U.S.C. §2(h)(3) and (g), which exempts most over-the-counter energy trades and trading on electronic energy commodity markets. The "loophole" was drafted by Enron Lobbyists working with senator Phil Gramm seeking a deregulated atmosphere for their new experiment, "Enron On-line." ...

The legislation was passed by the Republican controlled Congress and signed by President Bill Clinton [ouch --MJ] in December 2000 to allow for the creation, for U.S. exchanges, of a new kind of derivative security, the single-stock future. An attempt to reverse this policy was vetoed by President Bush in 2008. Several Democratic Legislators introduced legislation to close the loophole from 2000-2006, but were unsuccessful due to Republican control of the House and Senate.

So, in the ensuing years, Phil acquired a succession of nicknames, including "Enron Phil" for the CFMA, and recently "Foreclosure Phil" for his banking "modernization."

For more on the extent of the profound injuries that then-Sen. Phil Gramm personally inflicted on America, click here for a Joe Conason article in Salon.

But enough with beating up on a now-obvious sleazebag operative like Gramm. Let's go back a generation, and longer, to that moth-eaten spirit ultimately behind the Enron accounting scandal, and behind what is becoming known as the Panic of 2008. It's that mythical right-wing figure, the man Gore Vidal once perceptively described as "grandmotherly": Reagan.

The Sixties spawned a unique cast of characters who lingered and did their dance macabre across our collective unconscious, on their way to oblivion. The same seems to be happening with the malefactors of the Eighties, the Armani-clad hooligans of the Reagan era.

They seem determined not to go away completely, at least not right away. But I foresee a day when they will be like withered cranks at small-town school board meetings, voted out of office but showing up in enfeebled bids to harass those who replaced them. An effectively permanent death seems at hand.

Going back to the Fannie Mae/Freddy Mac bailout -- and perhaps forward toward many more -- here are a couple of especially significant quotes from The New York Times on this story:

The companies, known as government-sponsored enterprises, or G.S.E.’s, touch nearly half of the nation’s mortgages by either owning or guaranteeing them, and the debt securities they issue to finance their operations are widely owned by foreign governments, pension funds, mutual funds, big companies and other large institutional investors.

“G.S.E. debt is held by financial institutions around the world,” Mr. (Treasury Secretary Henry) Paulson said in his statement. “Its continued strength is important to maintaining confidence and stability in our financial system and our financial markets. Therefore we must take steps to address the current situation as we move to a stronger regulatory structure.”


"... a stronger regulatory structure"? This from a Bush Cabinet member?

R.I.P., Ronnie Reagan. (And Phil Gramm?)

Manifesto Joe Is An Underground Writer Living In Texas.

3 comments:

Brother Tim said...

This is not even close to dying. The same was said after the S & L Meltdown and then the Enron Fiasco. This crap will continue until ALL this country's wealth is transfered into the coffers of the obscenley wealthy few.

They will continue bailing out the bankers and money-changers, while leaving the average people holding the bag. No one is ever held to account for all the fraudulent money-changing. The government bails out the bankers, yet they still get to keep your house. It's a win-win situation for them.

Manifesto Joe said...

But politically, things can change. Unfortunately, it usually takes a lot of hardship for the changes to last. The last time the country faced anything like this was in the early '30s. There was a sea change then, and it lasted. I think that at least by the time Reaganomics and deregulation are again dug up from the ideological graveyard, it will be so long from now that they'll have to call it something else.

Marc McDonald said...

The Freddie/Fannie crisis is a new threat to the Bush "legacy." Reuters explains:

"He came into office touted as America's first 'MBA president,' steeped in deregulatory zeal and determined to run the economy like a business.

But 7 years later, a rescue plan that President George W. Bush's administration had to devise for U.S. mortgage giants Fannie Mae and Freddie Mac has served to underline an already troubled record of economic stewardship.

With oil prices at record highs, the housing market imploding and the threat of recession looming, the crisis over the two mortgage giants is the last thing Bush needed in the twilight of his presidency.

And if Fannie Mae and Freddie Mac's troubles get much worse, he could be faced with the dilemma of deciding whether to bail them out -- anathema to his Republican free-enterprise roots -- or let them fail, with serious consequences for world markets."