The Republicans are Responsible for the Financial Crisis

Many people think that no party or president can cause an economic crisis like the one we are now enduring. They are wrong. A president’s policies can directly impact the economy. The policies of George W. Bush and the Republicans in Congress are directly responsible for our current mess.

The root of our recent problems is the mortgage crisis. It was caused by the fact that because of Republican legislation which deregulated the banking industry, banks and financial institutions made billions of dollars worth of sub-prime mortgage loans to unqualified people. Thanks to the Republicans, those mortgages were than traded in bulk on the stock market and were purchased by brokerage firms and large banks.

The collapse was the Result of Republican anti-regulation philosophy that put consumers at the mercy of large banks and brokerages. Despite his recent calls for reform, John McCain has always supported broad deregulation of banks and brokerages. He has always characterized himself as a deregulator and he has no history prior to the presidential campaign of advocating steps to tighten standards on investment firms.

Back in 1933, following the stock-market crash, Congress enacted the Glass-Steagall Act, which separated the functions of commercial banks from those of stockbrokerage houses and regulated the way banks could make loans. From then on the government limited the banks in making mortgage loans. It was always the economic philosophy of Republicans in Congress, however, to oppose governmental regulations and to try to abolish the regulations governing banks and brokerages. Among the Republican senators in the 1990s who fiercely opposed any regulation of banks and financial institutions was Phil Gramm of Texas. Gramm, who has always been a close ally of John McCain, is now McCain’s chief financial advisor and co-chair of his campaign. Gramm is being spoken of by the McCain campaign as a top candidate for Treasury Secretary.

In the 1990s, when the Republicans took control of Congress, Phil Gramm was able to pass the Gramm-Leach-Bliley Act which largely deregulated the banking industry and allowed banks to merge with securities firms. John McCain voted for the bill. After that, Gramm slipped an amendment into an omnibus appropriations bill which deregulated the trading of financial instruments and allowed banks and brokers to trade mortgages as if they were stocks and bonds. This opened up the floodgates to massive trading of sub-prime mortgages.

Gramm later left the senate for a top position with UBS, an international financial firm involved in banking, brokerages, and wealth management. UBS is the parent company of the investment firm, PaineWebber. At UBS, Gramm lobbied Congress, the Federal Reserve Bank, and the Treasury Department on behalf of the banks. He sought to have Congress pass a law designed to forbid stronger state laws against predatory lending. As a result of Gramm’s efforts, the law forbidding state regulation of banks was passed, and lenders were free to practice predatory lending. Sub-prime mortgages became routine, and the trading of sub-prime mortgages in bulk became a widespread practice on Wall Street. When millions of people defaulted on those mortgages, the economy went into a tailspin.

Now John McCain, one of the Republicans who deregulated the banks and brokerages and enabled this disaster to happen, is running for President. Without any trace of irony, this Republican is shouting out against the lack of bank regulation! This Republican is talking about putting the chief congressional deregulator of banks into the cabinet as Treasury Secretary. We are being asked to forget about the perennial Republican opposition to bank regulation, and to forget about McCain’s role as a deregulator. We are asked to forget that Phil Gramm and other McCain advisors have been powerful lobbyists for the banking industry.

Governmental regulation of banks and security firms are intended to protect the consumer. If the bank regulations had not been erased by the Gramm-Leach-Bliley Act and other Republican acts, we would not have had this crisis. We now face the devastation of our economy thanks to a Republican and his buddies who got us into this mess in the first place. Do you want eight more years of this economic philosophy? Do you want to reward the gang that caused this disaster?