Leftist Liberal Democrats want you to believe that the 1999 Gramm-Leach-Bliley Act is what caused this year's cataclysmic financial meltdown, whose effects are spreading worldwide. They want you to believe that, because then they can make a feeble attempt to pin it on Republicans, and by association in the 2008 election, John McCain. (Even though Bill Clinton and a huge majority of Democrats supported the bill.) This false connection will also aid in their attempts to "re-regulate" the mythical "laissez-faire" financial sector. To me, McCain's political posture on this issue was perhaps the greatest mis-step of his campaign. It allowed the economy to be the number one issue, and gave voters the perception of Republican financial incompetence, when in fact it could have been, and should have been, a Democratic albatross. McCain played defense on this issue, and appeared too bipartisan and reveling in Wall Street bashing, which made him sound exactly like the opponent he was trying to distinguish himself from.
Please read this October Investors Business Daily article posted below, and draw your own conclusions. Then read this handy American Thinker summary, also published at the world-class website, ibdeditorials.com . [Why The Mortgage Crisis Happened]
Dems Blame Gramm Act For Crisis; Experts Disagree
BY SEAN HIGGINS
INVESTOR'S BUSINESS DAILY
These are awkward days for former Rep. Jim Leach. The Iowa Republican crossed party lines to endorse Barack Obama. But now Democrats, including Obama, say a bill he co-authored is responsible for the mortgage crisis.
"We cannot expect to be on the (same) wavelength on everything," Leach told IBD. Leach, now a visiting professor at Princeton, blames lax oversight of mortgage giants Fannie Mae and Freddie Mac and the Securities and Exchange Commission's 2004 move to ease leverage limits. Bank
regulation isn't the issue, he says.
"This problem relates to the housing industry, to mortgage instruments," he said. "The grave congressional and legislative error is on Fannie and Freddie. The great two executive branch aspects are the securities regulators' failure and insurance regulators' failure."
But for many Democrats, the credit crisis has a simple villain: the Gramm-Leach-Bliley Act. They think the GOP-authored 1999 law caused the meltdown — and they want voters to see it that way too. That's what has happened so far. Recent polls show a swing to Democrats, even though they spent years blocking any curbs on Freddie and Fannie. If they win big, they'll have a mandate to heavily regulate financial firms their way.
In a September release, Obama's camp said the 1999 law put too little effort into "modernizing supervision of the financial industry. "Nearly a decade later, our financial markets — and everyday Americans—are paying the price."
Senate Majority Leader Harry Reid, D-Nev., said last month that ex-GOP Sen. Phil Gramm, "was responsible for deregulation in the financial services industries that paved the way for much of the (current) crisis."
Pinning the blame on Gramm not only tars Republicans and free markets, but John McCain, R-Ariz. Gramm was a campaign adviser. But experts see scant evidence it had anything to do with the crisis. Many say it's helped limit the fallout by letting commercial banks like JPMorgan Chase buy ailing investment banks like Bear Stearns. But with voters looking for scapegoats, Republicans and deregulation are under fire. A recent CBS poll found 45% of respondents said the government regulates too little. Just 21% said too much.
Gramm-Leach-Bliley repealed the 1933 Glass-Steagall Act, which separated commercial and investment banking. U.S. banks had urged the change, noting their European peers faced no such curbs. The new law allowed banks to become financial supermarkets, with a full array of products. Most investment banks stayed independent. The bill was passed 90-8 in the Senate and 362-57 in the House. President Clinton signed it and defends the act to this day.
Latter-day critic Reid voted yes. Obama wasn't in the Senate. But his vice presidential pick, Sen. Joe Biden, D-Del., voted yes. Neither Reid's nor Obama's office responded to requests for comment.
There is no link between Gramm-Leach-Bliley and recent bank failures, said Pete Wallison, an economist with the conservative American Enterprise Institute. "All of the investment banks and securities firms that have gotten into trouble . . . were independent banks," he said. "So the elimination of Glass-Steagall had absolutely nothing to do with their financial problems." Wallison pins commercial bank failures on bad mortgages, not on any brokerage arm.
Dean Baker, co-director of the liberal Center for Economic and Policy Research, says the bill deserves some blame for today's crisis. "(The crisis) is mostly derivative instruments — (the act) just made it harder for the SEC to regulate those instruments," he said. Yet Baker admits the SEC showed little interest in regulating derivatives under Clinton or Bush.