Is this the best a prominent conservative writer can do?
In the latest issue of National Review, Ramesh Ponnuru claims I penned a "hit piece" on Phil Gramm, the cochairman of John McCain's presidential campaign. Ponnuru does so in an article that accuses Mother Jones, Salon, Huffington Post, The Nation and Keith Olbermann of "smearing" Gramm with the threefold mission of discrediting Gramm, McCain, and deregulation. (Gramm, when he was the Republican chairman of the Senate banking committee, was the king of financial deregulation.) Ponnuru has little to say about the fact that Gramm is now an executive at Swiss banking behemoth UBS, who has lobbied Congress on behalf of the bank. Is it appropriate for a campaign official to be working for a foreign-based transnational? Several lobbyists have had to depart the McCain campaign because they toil for private interests. Does Ponnuru believe they should be welcomed back?
But on to his specific complaint about the article I wrote about Gramm. The piece focused on what I called a "sly legislative maneuver" pulled by Gramm in December 2000 that "greased the way to the multibillion-dollar subprime meltdown." During a week of chaos in Washington--Bush v. Gore was being decided by the Supreme Court, and Congress was trying to pass quickly an omnibus spending bill--Gramm attached to that massive spending bill a 262-page measure called the Commodity Futures Modernization Act. That bill deregulated financial instruments known as "credit default swaps," which, according to Michael Greenberger, who directed the Commodity Futures Trading Commission's division of trading and regulation in the late 1990s, have been at "the heart of the subprime meltdown,"
Here's what Ponnuru wrote about that article:
The newest charge against Gramm is that the... 2000 legislation on the regulation of futures included a provision that deregulated "credit default option swaps." David Corn issued an indictment in Mother Jones, headlined "Foreclosure Phil":
Who's to blame for the biggest financial catastrophe of our time? There are plenty of culprits, but one candidate for lead perp is former Sen. Phil Gramm. Eight years ago, as part of a decades-long anti-regulatory crusade, Gramm pulled a sly legislative maneuver that greased the way to the multibillion-dollar subprime meltdown. . . .
Credit default swaps are essentially insurance policies covering the losses on securities in the event of a default. Financial institutions buy them to protect themselves if an investment they hold goes south. . . . Because of the swap-related provisions of Gramm's bill -- which were supported by Fed chairman Alan Greenspan and Treasury secretary Larry Summers -- a $62 trillion market (nearly four times the size of the entire U.S. stock market) remained utterly unregulated, meaning no one made sure the banks and hedge funds had the assets to cover the losses they guaranteed.
"Utterly unregulated" is an overstatement, but it is not necessary to get into the details to see the problem with Corn's account. To believe that Gramm was pulling a "sly legislative maneuver," you would have to think that Greenspan and Summers -- Clinton's Treasury secretary, that is -- were in on the conspiracy. In which case Gramm's claim to be "lead perp" looks pretty thin.
As right-of-center blogger Tom Maguire has pointed out, the credit-default provision of the law actually emerged from a Clinton administration working group.
Note that Ponnuru does not deny that the deregulation of swaps was one cause of the subprime mess. (In fact, as I reported in the article, UBS, explaining its $37 billion in subprime-related losses, pointed to credit default swaps.) Also note that he does not deny that Gramm was the legislator responsible for making this measure a reality. As the fellow who tacked it on to the must-pass spending bill immediately before the bill was to be voted on, he certainly can be assigned authorship. The commodities deregulation bill prior to Gramm's maneuver had been considered dead--even by Gramm himself.
Ponnuru has been reporting on Washington long enough to know that shoving a bill into a must-pass appropriations measure at the last minute qualifies as a "sly" move. Here's how a 2006 report from the Senate Permanent Subcommittee on Investigations--then chaired by Republican Senator Norm Coleman--put it: "The [commodities deregulation bill] was passed by both the House and Senate on December 15, the last day of the 106th Congress, as part of an omnibus legislative package involving 13 appropriations bills and several authorization bills. There was no opportunity for debate on any of the significant provisions." As one congressional aide told me about the measure's passage, "Nobody in either chamber had any knowledge of what was going on or what was in it."
Ponnuru's logic is wanting. Just because Greenspan, Summers, and a Clinton administration working group also wanted to see swaps deregulated does not mean that Gramm did not pull a fast one. By the way, not everyone was on the swaps-deregulation express. Arthur Levitt, then the chairman of the Securities and Exchange Commission, testified before a joint hearing of the Senate agriculture committee and Gramm's Senate banking committee that the wholesale deregulation of swaps would be dangerous: "In my judgment, the risk of this regulatory approach is simply unacceptable for America's investors. Moreover, I think there is no apparent public policy justification for this far-reaching provision." And Congress, through its normal deliberations, had not seen fit to pass the commodities bill.
Gramm slid the commodities into the spending bill at a hectic moment when few were paying attention. In classic Capitol Hill fashion, he exploited the situation. Does Ponnuru believe this style of governance is good for the Republic? As the guy who orchestrated this backdoor maneuver, doesn't Gramm qualify as lead perp? To award him that title doesn't mean there weren't other perps as well. In fact, it suggests there were.
Conservatives often spout off about responsibility and accountability. But Ponnuru wants to hand Gramm a pass. It was his bill (cosponsored by a few others). It was his action that turned the bill into law. It was the subsequent rise of unregulated credit default swaps that helped create the conditions for the subprime crisis. I encourage readers to review my article and Ponnuru's and decide which deserves to be labeled a "hit piece."