The Times is determined to blame free market capitalism in general and the GOP in particular for this year's financial market meltdown and resulting recession. Appearing under the ominous headline "The Reckoning" was Monday's enormousfront-page profile of former Sen. Phil Gramm by reporters Eric Lipton and Stephen Labaton, "A Deregulator Looks Back, Unswayed [1]."
Back in 1950 in Columbus, Ga., a young nurse working double shifts to support her three children and disabled husband managed to buy a modest bungalow on a street called Dogwood Avenue.
Phil Gramm, the former United States senator, often told that story of how his mother acquired his childhood home. Considered something of a risk, she took out a mortgage with relatively high interest rates that he likened to today's subprime loans.
A fierce opponent of government intervention in the marketplace, Mr. Gramm, a Republican from Texas, recalled the episode during a 2001 Senate debate over a measure to curb predatory lending. What some view as exploitive, he argued, others see as a gift.
"Some people look at subprime lending and see evil. I look at subprime lending and I see the American dream in action," he said. "My mother lived it as a result of a finance company making a mortgage loan that a bank would not make."
On Capitol Hill, Mr. Gramm became the most effective proponent of deregulation in a generation, by dint of his expertise (a Ph.D in economics), free-market ideology, perch on the Senate banking committee and force of personality (a writer in Texas once called him "a snapping turtle"). And in one remarkable stretch from 1999 to 2001, he pushed laws and promoted policies that he says unshackled businesses from needless restraints but his critics charge significantly contributed to the financial crisis that has rattled the nation.
He led the effort to block measures curtailing deceptive or predatory lending, which was just beginning to result in a jump in home foreclosures that would undermine the financial markets. He advanced legislation that fractured oversight of Wall Street while knocking down Depression-era barriers that restricted the rise and reach of financial conglomerates.
And he pushed through a provision that ensured virtually no regulation of the complex financial instruments known as derivatives, including credit swaps, contracts that would encourage risky investment practices at Wall Street's most venerable institutions and spread the risks, like a virus, around the world.
The Times finally cleared its throat in paragraph 8 to murmur that whatever damage was done by deregulation, it was actually bipartisan in nature:
Many of his deregulation efforts were backed by the Clinton administration. Other members of Congress - who collectively received hundreds of millions of dollars in campaign contributions from financial industry donors over the last decade - also played roles.
Then came some more finger-pointing for Phil Gramm, who is evidently the only politician in history to regale different audiences with stock, folksy stories:
From 1999 to 2001, Congress first considered steps to curb predatory loans - those that typically had high fees, significant prepayment penalties and ballooning monthly payments and were often issued to low-income borrowers. Foreclosures on such loans were on the rise, setting off a wave of personal bankruptcies.
But Mr. Gramm did everything he could to block the measures. In 2000, he refused to have his banking committee consider the proposals, an intervention hailed by the National Association of Mortgage Brokers as a "huge, huge step for us."
A year later, he objected again when Democrats tried to stop lenders from being able to pursue claims in bankruptcy court against borrowers who had defaulted on predatory loans.
While acknowledging some abuses, Mr. Gramm argued that the measure would drive thousands of reputable lenders out of the housing market. And he told fellow senators the story of his mother and her mortgage.
"What incredible exploitation," he said sarcastically. "As a result of that loan, at a 50 percent premium, so far as I am aware, she was the first person in her family, from Adam and Eve, ever to own her own home."
Former Democratic President Bill Clinton hardly comes in for any blame from Lipton and Labaton, although he too defended the deregulation in a September 24 interview with Maria Bartiromo, who writes a column for BusinessWeek [2] (hat tip Heritage Foundation [3]).
Bartiromo: Mr. President, in 1999 you signed a bill essentially rolling back Glass-Steagall and deregulating banking. In light of what has gone on, do you regret that decision?
President Clinton: No, because it wasn't a complete deregulation at all. We still have heavy regulations and insurance on bank deposits, requirements on banks for capital and for disclosure. I thought at the time that it might lead to more stable investments and a reduced pressure on Wall Street to produce quarterly profits that were always bigger than the previous quarter. But I have really thought about this a lot. I don't see that signing that bill had anything to do with the current crisis. Indeed, one of the things that has helped stabilize the current situation as much as it has is the purchase of Merrill Lynch by Bank of America, which was much smoother than it would have been if I hadn't signed that bill.
Clinton even defended Sen. Gramm:
Bartiromo: Phil Gramm, who was then the head of the Senate Banking Committee and until recently a close economic adviser of Senator McCain, was a fierce proponent of banking deregulation. Did he sell you a bill of goods?
President Clinton: Not on this bill I don't think he did. You know, Phil Gramm and I disagreed on a lot of things, but he can't possibly be wrong about everything. On the Glass-Steagall thing, like I said, if you could demonstrate to me that it was a mistake, I'd be glad to look at the evidence. But I can't blame [the Republicans]. This wasn't something they forced me into. I really believed that given the level of oversight of banks and their ability to have more patient capital, if you made it possible for [commercial banks] to go into the investment banking business as Continental European investment banks could always do, that it might give us a more stable source of long-term investment.
Yet Lipton and Labaton kept the focus on Gramm, devoting only sporadic sentences to the Clitnon administration involvement.
Labaton has a history of hostility toward Republicans, [4] particularly in his series on the failed fight to balance liberal slant at the Corporation for Public Broadcasting.