Blame who?

Big Banks that are bankrupt by several times, some in the multiples of ten digits.

Mainstream media that has yet to ask "What is the total amount of these toxic assets, and who has them?"

The Internet, cable news shows and radio waves being used and abused by those with explicit political agendas, attempting to place blame other than where it should be placed. All in an attempt to "win" the next election. Funny thing is, they all claim to be the "champions of truth" when in reality, most of the premises they start their tirades from are false.

No wonder 90+% of my friends (most very intelligent) believe it is still a subprime problem. They also argue that Bank Of America and CitiGroup are solid companies, when nothing could be further from the truth. They still believe it is wholly a FNMC and FHLMC debacle, when in reality they are symptoms of the disease.

To prove my point - The Congressional Budget Office now estimates that GSE losses will cost $240 billion in fiscal year 2009. Between FNMC and FHLMC, they service roughly $5 Trillion in mortgage loans. 20% are subprime, yet not all of those are in default. Even if the full 20 % default, that's $1 Trillion in losses. A big amount, yes. But, that does nothing to explain the tens of trillions in mortgage related losses so far, and the potential hundreds of trillions that may soon come.

Everyone knows who Barney Frank is. He gets the blame for easing the GSE's ability to take in low income applicants for mortgages. From 1994 - 2006, the Republicans controlled both houses, and from 2001 - 2008, also controlled the White House. What is so funny to me is this; for Republicans to blame Barney Frank for this mess means the big macho guys let Barney (I have to be careful here) have his way with them.

Yeah, right.

I'll Play The Blame Game

Phil Gramm was a Republican US Senator from Texas from 1985 - 2002. He is currently Vice Chairman of Investment at UBS Bank, where he started within days of leaving the Senate.

The Wall Street Journal has printed a nice little story from Mr. Gramm. I say nice, because the blame for the current financial system disaster can be laid at the feet of a small handful of people. Mr. Gramm's actions most certainly include him. He is very worried how history will reflect his championing of explicitly targeted deregulation. Every deregulatory effort he helped enact has been a direct cause of this financial crisis.

Congress was convinced by Phil Gramm that Banking deregulation was the answer. Eliminate the wall between investment and commercial banks and large amounts of money will create more jobs was his argument. In 1999, passage of the Gramm, Leach Bliley Act accomplished that, and removed one of the last vestiges of post-depression laws meant to keep the banking industry sound, Glass Steagall.

In 2008, the Washington Post named Gramm one of seven "key players" responsible for winning the 1998-1999 fight against regulation of derivatives trading. Nobel Laureate in Economics Paul Krugman has listed Gramm as the number two person (behind Alan Greenspan) most responsible for the financial crisis starting in 2008.

Gramm was the leading voice for the Commodity Futures Modernization Act of 2000 which kept derivatives transactions, including those involving credit default swaps (CDS), free of government regulation.

Free of government regulation really means all these "toxic assets" are traded "in the dark" with no public view of a bid/ask price. Combine that with accounting rules that state if "no observable inputs" are recognized, ie a public bid/ask, then the holder can say they are worth whatever the holder needs them to be worth. The holder may even claim they are worth more than they bought them for, even though they can't get a penny for some of them.

It is these very "toxic assets" that will still lose hundreds of trillions in value.

What the Commodity Futures Modernization Act of 2000 allowed became a $600 Trillion business, based on no physical assets. That is what Phil Gramm intended. This is what Phil Gramm is praying the mainstream media doesn't figure out.

Wendy Gramm was the Chairperson for the Commodity Futures Trading Commission from 1988 - 1992. Her most notable contribution to that commission was granting Enron an exemption from standard accounting procedures, which proved to be a boon to Enron.

Within days of granting Enron that exemption, Wendy quit the CFTC. Five weeks later, she joined the board of Directors at Enron.

After the demise of Enron, Wendy Gramm was named in several lawsuits, many of them won by the plaintiffs.

Wendy is Phil's wife.

We all know Enron lied. Yet for some reason, the Financial Community saw no prudence in learning from that disaster.

Neither did the Gramms.

As soon as he left the Senate, Phil was hired by United Bank of Switzerland, UBS. Phil had easy access to the Senate floor, and spent most of the last 6 years enjoying that access, and twisting arms for more deregulation.

Phil has made hundreds of millions of dollars at UBS. Within the last few days, UBS settled with the US Justice Department to hand over the names of several hundred US clients that created overseas accounts for the purpose of evading taxes.

UBS had to settle, for the Justice Department caught them red-handed with a dozen or so explicit examples of US uber-wealthy clients hiding profits made in the US in off shore accounts.

We ain't talkin' Joe Six-packs here, we are talking about Billionaires. Billionaires that benefited from the greatest society ever created, who not only refused to concede gratitude to God for placing them here, but act as Benedict Arnold did, like a spoiled child who takes his ball home when the other kids won't let him change the rules to his liking.

Now Phil calls foul. He is not to blame, in fact, Phil feels he is the reason the US is so good. Even though he works for a foreign company that hired him to break US laws.

What Phil Gramm has championed is the culture of lying through omission. In order to game the system so only the wealthy win, he has established a rhetoric that exalts only the heads of industry. Gramm makes no excuses for the ultra-high comp packages of CEO's:

"In economics, we define labor exploitation as paying people less than their marginal value product. I recently told Ed Whitacre (former CEO of AT&T, who retired with a $158 million pay package) he was probably the most exploited worker in American history because he took Southwestern Bell, which was the smallest of the former Bell companies, and he turned it into the dominant phone company on earth. His severance package should have been billions."

Yep, poor Mr. Whitacre. He is definitely exploited. By Phil Gramm, who took that comment to other wealthy people, and made them UBS clients.

Please don't misunderstand me. I do not feel we should be socialists. Capitalism allows for the expanding of ideas and innovations that make every one's life better, while motivating the best among us to exceed previously reached limits. Socialism only retards that.

I think there are many abuses concerning congress and entitlement programs that must be remedied. Yet I also feel it is our duty to create a society in which every member is as productive as their abilities allow. It is at the heart of this country's spirituality, or at least claimed spirituality. We are directed to help all those less fortunate. To consciously deny that, is to consciously deny that spirituality.

Phil Gramm, and many like him, would rather "game" the system for their personal benefit, instead of building it to a model where all can participate to their fullest.

Phil Gramm actually taught economics at Texas A&M, so he knows what he did. Wendy Gramm is also an economist, and is currently on the board of the Mercatus Center at George Mason University. A right wing think tank designed to find strategies to eliminate all regulation, the Gramm's were instrumental in the Mercatus Center's establishment.

Judging by history, the Gramms' have lost all faith in their fellow beings and follow only greed as their shining star. How else can you explain their actions?


More on Phil and Wendy;
Phil Gramm's UBS problem
Texas on line
Enron and the Gramms
Phil Gramm's Evisceration
Wendy Gramm has no regrets
Phil Gramm on government reform
Texas Lawyer Blog