The Imploding American Economy & John McCain's Terrorist In Pinstripes

Having been chided last week by Phil Gramm as a whiner afflicted by "a mental recession" as one of millions of Americans who are struggling to keep their heads above water while the U.S. is sucked ever deeper into the worst economic downturn since the Great Depression, it was grimly satisfying to see Henry Paulson standing on the steps of the Treasury Building yesterday afternoon and announcing yet another massive taxpayer bailout, this one for the Fannie Mae and Freddie Mac mortgage giants.

It was a bittersweet moment to be sure, and one that John McCain and his toxic campaign co-chair and chief economic adviser no doubt fail to appreciate.

Gramm should be thrown out of the McCain campaign plane at 30,000 feet without a parachute if the presumptive Republican nominee wants to make a statement about how presidential he will be when it comes to the biggest campaign issue of all -- the economy -- and not merely a septuagenarian George Bush knock-off.

This is because Gramm, as a U.S. senator and wheeler-dealer extraordinare, is the man most responsible for the repeal of Depression-era banking regulations that have led to today's economic turmoil, much of it triggered by the rapacious and arguably criminal actions of Wall Street investment banks.

Sentient Americans long ago became accustomed to the gap between our leaders' words and reality, so the McCain-Gramm tandem is par for the course, and McCain's efforts to distance himself from the snarky Texan since his "mental recession" remarks and now the mortgage institution bailout have been laughingly feeble: Gramm, who has more than earned the nickname "Foreclosure Phil," is suddenly called "a volunteer" who "does not speak for the candidate" but nevertheless is bound to remain an integral part of this hapless campaign through to November when the Republican hegemony sputters to a dismal end.

Paulson's actions, necessitated by the flight of private mortgage capital, makes the feds responsible for most mortgages, as well as student loans, at a time when the Iraq war and other politics-over-policy actions, including feel-good stimulus checks, have plunged the U.S. even deeper into debt and ravaged the dollar.

Even at this stage of the game, President Bush is confronted with a crisis that he and many of his economic advisers still do not understand, cannot admit the full gravity of and are pretty much clueless when it comes to long-term solutions that do not step on the toes of the fats cats who have oiled the Republican money machine for the last 15 years. As it is, even the most sanguine economists are saying that dozens of bank failures in the coming months is not outside the realm of possibilities.

There is indeed "no rule book for an economic crisis," as economist Douglas Elmendorf has written, and there is a long way to go before the last car careens off the cliff before the ongoing economic train wreck is over.

In fairness, the president inherited some of the time bombs that are exploding on the train tracks. But he is probably the last person on earth with a Harvard MBA to not acknowledge that the U.S. is figuratively if not literally in a recession, although he does keep saying that "Our economy obviously is going through a tough time."

The administration's actions to bail out the student loan industry and now the two government-chartered mortgage giants is akin to a nationalization. These actions are, of course, anathema to fiscal conservatives like Gramm who believe the less the government has to do with financial markets the better and the less that Joe and Jane Sixpack have to rely on it to send their kids to college or buy a new home the better still. Ditto for health care, but that's another story.

Gramm was the biggest of the big guns behind the 1999 repeal of the banking regulations -- the Gramm-Leach-Bliley Act -- which was officially called The Financial Services Modernization Act. (Don't you just love the name!)

Passage of the law was greased with an astonishing $300 million in lobbying money, and it encountered little opposition other than from those old-fashioned banks that actually insure your deposits, while receiving the enthusiastic blessing of the Bill and Hillary Clinton co-presidency.

One of many consequences of the repeal was that a year later the Swiss bank UBS gobbled up brokerage house Paine Weber. A year after that, Gramm settled in as a vice chairman of UBS's new investment banking arm and has since energetically lobbied Congress, the Federal Reserve and the Treasury Department on banking and mortgage issues.

This has included rolling back state rules that sought to stem the rise of predatory tactics used by lenders and brokers that led directly to the subprime mortgage meltdown.

McCain and Gramm go way back.

In 1992, the two worked closely as senators to defeat Hillary Clinton's 1993 health care plan, and in 1996 McCain was national chairman of Gramm's unsuccessful presidential run.

In 2002, as the full extent of the Enron scandal was emerging, The New York Times called Gramm "a demon for deregulation" as one of the chief engineers of the stealthy approval of a bill that exempted energy commodity trading from government regulation and public disclosure.

Meanwhile, Gramm's wife Wendy was paid over $1 million in salary, stock options, dividends and other goodies from 1993 to 2001 as an Enron board member, but of course was deaf, dumb and blind to the energy company's rampant cooking its books with the acquiescence of the late unlamented Arthur Andersen accounting company.

The result was economic ruin for thousands of families.

Considering the pain and suffering that Gramm's masterwork has caused ordinary Americans, it is not hyperbolic to say that he is a terrorist, he just doesn't wear funny looking headgear and carry a Kalashikov.

Photo by Gabriel Chmielewski/College Station Eagle via AP