Unquestionably, Gramm’s actions as a US Senator were failures for consumers and our economy. But given the massive profits of the “too big to fail” financial institutions, they were great successes for Wall Street and large corporations.
In 1999, then Republican Senator Phil Gramm co-sponsored the GrammLeachBliley Act, aka the Financial Services Modernization Act, aka the Citigroup Relief Act which was enacted by the 106th US Congress and, unfortunately signed into law by President Bill Clinton. It repealed part of the Glass-Steagall Act of 1933 which had successfully protected consumer finances by erecting firewalls between banks of deposit, security investment companies and insurance companies. The GrammLeachBliley Act removed those restrictions allowing financial institutions of all kinds to consolidate.
The bill was crafted to provide legal cover for Citigroup which, a year earlier had been formed by the merger of Citicorp and Travelers Group. For the first time since the Great Depression, the merged organization combined banking, securities and insurance services that included Citibank, Smith Barney, Primerica and Travelers.
For Wall Street, it was the best legislation money could buy.
But Sen. Gramms meddling on behalf of large financials didnt stop there. In 2000, he sponsored the Commodity Futures Modernization Act which was also signed into law by President Clinton. It weakened yet another post-Depression law, the Commodity Exchange Act of 1936, freeing over-the-counter derivitives transactions between sophisticated parties from regulation under federal securities laws. It is the law that permitted credit default swaps.
Combined, the two Gramm-sponsored laws created an environment of massive profits for Wall Street and led to the 2007 subprime mortgage crisis which cost the world economy an estimated $7.7 trillion! And if that doesnt give you cause for concern, consider this: Despite being the poster boy for our current economic problems, Gramm was selected as the senior economic adviser for John McCains presidential campaign.
Had McCain been elected with Gramm advising him, imagine where our economy might be now!