DEREGULATION + GREED => EXPONENTIAL GROWTH - OVERSIGHT => HUGE TAXPAYER FUNDED BAILOUT
Due to my frustration with conservatives and independents that refuse to understand the relationship between the Republican party’s agenda and the current crap we are facing, I decided to research the major failings of the past 30 years and their relationship to the party in power.
Beginning in the 1980’s with Ronald Reagan’s commitment to vast reduction of oversight and deregulation, the past 30 years have seen alternating periods that demonstrate a clear pattern; deregulation, obscene increase in wealth of elite constituencies, then failures, bailouts, criminal conduct and financial ruin. It is no coincidence that the deregulation and wealth occurs during Republican control, while the bailouts happen on the democrats’ watch. It is also interesting to note that for the past 30 years (except for two), Republicans have controlled one or more of the House, Senate or the White House. They also held control of the White House for a total of 20.
Since I like pictures, I created a timeline (below the jump) that graphically demonstrates these relationships and helped me understand some very complex issues.
I focused on three major failures: the Savings and Loan debacle, Enron and the current credit crisis. I also flagged moments where McCain had something to do with it.
Savings & Loan Crisis
All during the 70's the S&L's were whining because you could make more money investing in the stock market or real estate than opening up a savings account. So, for years they were pushing for more and more relaxation of rules governing how they could invest their deposits. When Reagan won, their wet dreams were answered. Not only did Reagan continue giving them more and more leeway to invest savings in riskier schemes, but he simultaneously directed the Federal Home Loan Bank Board to massively reduce its oversight function:
1982-1985 Reductions in the Bank Board's regulatory and supervisory staff. In 1983, a starting S&L examiner is paid $14,000 a year. The average examiner has only two years on the job. Examiner salaries are paid through OMB, not the Bank Board. During this period of supervisory and examination retraction, industry growth increases. Industry assets increase by 56% between 1982 and 1985. 40 Texas S&Ls triple in size between 1982 and 1986; many of them grow by 100% each year. California S&Ls follow a similar pattern.
FDIC: The S&L Crisis a Chronology
A new chair came on board in 1983, Edwin Gray, and he noticed that things were dreadfully bad, that savings and loans were amassing huge amounts of risky debt and no one seemed to be paying attention. So, in 1985 he starts reinstating some of the old rules, namely rules about how much and what kind of debt an S&L can take on. Well, a good friend of John McCain's named Charles Keating was one of the guys that didn't like this so much. So, he asked John for help and John assembled four other congressmen to approach Gray and ask him to lay off of poor Chuck Keating. Well, not only did it not work, but it totally backfired and everybody got into trouble. But none more than the taxpayer - the Keating bailout cost us almost $3B.
So papa Bush realizes that this is a HUGE cluster f**k and we need to do something, so he created the Resolution Trust Corporation. The ensuing S&L bailout wound up costing American taxpayers in excess of $500B by 1995.
Enron
The seeds of this disaster were also sown in the Reagan administration with Wendy Gramm, Phil Gramm's wife. She headed up Reagan's "Task Force on Regulatory Relief". She went on to serve in papa Bush's administration, eventually getting the opportunity to "walk her talk" as chair of the Commodity Futures Trading Commission. Before she had to go in 1993, she made one last rule change - removing major regulations regarding the oversight of energy trading:
Wendy Gramm has been influential in her own right. She, too, is a demon for deregulation. She headed the presidential Task Force on Regulatory Relief in the Reagan administration. And she was chairwoman of the U.S. Commodity Futures Trading Commission from 1988 until 1993.
In her final days with the commission she helped push through a ruling that exempted many energy futures contracts from regulation, a move that had been sought by Enron. Five weeks later, after resigning from the commission, Wendy Gramm was appointed to Enron's board of directors.
Enron And the Gramms (NYT)
Well, Wendy did pretty well for herself at Enron; so well, that she was later involved in multiple fraud suits brought on by the shareholders. But, not before hubby Phil helped out the poor bastards with the Commodity Futures Modernization Act of 2000. This allowed Enron to set up it's energy trading website in total regulatory obscurity. Well, it didn't take long for everything to blow up in their faces but not before costing their shareholders and California $30B each. The CFMA also played a big role in the current credit crisis that I'll explain below - Gramm got a two-fer!
The Credit Crisis
The current crisis is by FAR the chef d'oeuvre of the Republican Party. They really, really did it this time. A lot has been discussed and explained about the guts of the problem, some of the best stuff right here on dKos!! So, I'm not going to get into detail about the nature of the crisis at this point in time. However, I can explain how it started, and how Phil Gramm, President Bush, and many other greedy selfish bastards let it happen.
It all started in the 80's (of course, doesn't every bad thing?)... Salomon Brothers were pissed because they couldn't sell Ginnie Mae mortgage bundles to other banks; only old ladies would buy them because of some real complex stuff regarding interest vs principal payments, scheduled payments, whatever. Not important. In any case, they invented Collateralized Mortgage Obligations (CMO's) as a way to package and trade private mortgages and make shitloads of money.
During the 90's, the economy was good and credit default swaps hadn't been perfected yet. And, although Republicans had an ambitious deregulation agenda in the "Contract for America", Newt just couldn't get any of it passed! But, Phil Gramm did manage to repeal the Glass-Steagall act with his Gramm-Leach-Bliley Act of 1999 that allowed the creation of financial behemoths, too big to fail. Then, at the end of 2000 during the Great Presidential Selection, he snuck in a 262-page amendment to an omnibus bill called the Commodity Futures Modernization Act (mentioned above). Nobody read it, but they should have. Phil successful placed this new-fangled thing called "credit default swaps" into regulatory obscurity, creating the perfect no-man's-land on Wall Street where greed ran free and got us here today.