Was Obama Economic Envoy Part of the Problem?

| Wed Nov. 12, 2008 1:17 PM EST

The Obama transition office announced on Wednesday that the president-elect will send two representatives to meet with delegates attending the G-20 economic summit being held this weekend: former Secretary of State Madeleine Albright, a Democrat, and former Congressman Jim Leach, a Republican. The pair, according to a press release, will hold "unofficial meetings to seek input from visiting delegations on behalf of the President-elect and Vice President-elect." Afterward, Albright and Leach will brief Barack Obama and Joe Biden.

Leach is both a curious and obvious choice. First, the obvious: he's a Republican who led the Republicans for Obama effort during the presidential campaign. By calling on Leach, who had a long career in the House as a liberal GOPer, Obama can show he does believe in bipartisanship. Now the curious: during part of his stint in Congress, Leach chaired the House banking committee and shared responsibility for passage of the Gramm-Leach-Bliley legislation, which broke down the wall between commercial banks and investment banking.

Since the current Wall Street collapse began, policy wonks have debated whether this 1999 law led to the present troubles. But let's look at an Obama campaign statement released last March (when he gave a speech on financial regulation) that referred to the Gramm-Leach-Bliley Act:

Instead of finding the right level of government oversight in a vibrant free market, we've let the special interests set the agenda. Changes in the financial landscape, driven by technology and globalization, made the 1930's era Glass-Steagall Act--the New Deal era law that required that investment banking be kept separate from commercial banking--increasingly inefficient. While reform was desirable, the banking, insurance and securities industries spent over $300 million lobbying Congress to shape that reform to meet their own interests. In the two years before Glass-Steagall was repealed in 1999, financial service industries gave $58 million to congressional campaigns; $87 million to political parties; and spent $163 million lobbying Washington. But though the regulatory structure was outdated, the need for oversight was not. Unfortunately, in the rush to repeal the law to create immediate opportunities for certain Wall Street firms, little effort went into modernizing the government's supervision of the financial industry--to guard against the potential for conflicts of interest, to insist on transparency, or to ensure proper oversight of new and complex financial products or the dramatic rise of investment banks and non-bank financial institutions, like hedge funds and Structured Investment Vehicles. Nearly a decade later, our financial markets--and everyday Americans--are paying the price.

Paying the price--for a bill that Leach helped to usher through Congress. That's a tough critique.

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Former Senator Phil Gramm, the onetime Republican chair of the Senate banking committee who now is a high-paid exec for troubled Swiss banking giant UBS, has received plenty of less-than-flattering attention this past year due to his legislative efforts to deregulate the financial industry, including his advocacy of Gramm-Leach-Bliley. (See my piece on Foreclosure Phil.) That's because Gramm was a top adviser (and close pal of) John McCain and had been mentioned as a possible Treasury Secretary in a McCain administration.

But Leach shares responsibility for some of this deregulation and for legislation that Obama has blasted as the handiwork of corporate lobbyists.

It's doubtful that Leach is in line to be Obama's Treasury secretary. Obama and his aides probably want to keep whomever that might be far away from this week's summit--in order to make sure that they are not tied to whatever comes out of the George W. Bush-brokered gathering (if anything). But Leach, who first made a national name for himself as an arms control advocate opposing Ronald Reagan's nuclear buildup, could be in line for something. After all, he was the most prominent Republican who spoke at the Democratic convention for Obama.

Whatever award awaits Leach--commission chair, ambassadorship--he ought to be kept away from financial policy. If only to show that Obama was indeed serious when he assailed the lobbyists-driven failings of Gramm-Leach-Bliley.

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