There has already been much rumbling over whether Presidential candidate Ted Cruz was a conservative outsider whom the establishment hated, or if he was simply a wolf in sheep’s clothing to give Republicans the illusion of choice. And on March 18, Cruz’s facade was completely shattered when he hired the individual behind the removal of Glass-Steagall as his economic adviser.
In addition to now bringing former Senator Phil Gramm to his campaign, Ted Cruz has done at least two things that have made voters question his stance as a ‘champion against the establishment’. First, he covered up a loan made with Goldman Sachs to help fund his Senatorial campaign and shrugged off the fact that his wife works for a bank that was bailed out during the 2008 Credit Crisis. And secondly, after months of rhetoric to bring forward a bill to audit the Fed, he chose to be absent on the day of the vote.
On Friday, Republican presidential candidate Ted Cruz snagged the endorsement of former Texas Senator Phil Gramm and announced that Gramm will serve as a senior adviser to the campaign on economic issues.
Gramm has a long history of railing against regulation, particularly in the financial industry, and the legislation he helped pass through during his time in the Senate have been connected to the financial crisis.
Deregulating banks, paving the way for the financial crisis
Gramm was perhaps Congress’ biggest proponent of financial deregulation, allegedly tellingformer Securities and Exchange Commission (SEC) Chairman Arthur Levitt, “Unless waters are crimson with the blood of investors, I don’t want you embarking on any regulatory flights of fancy.”
Gramm served as chairman of the Senate Banking Committee from 1995 to 2000, where he oversaw and advocated for a number of measures that weakened the government’s oversight of the finance industry. He was an architect of a key measure bearing his name, the Gramm–Leach–Bliley Act, which repealed parts of the Glass-Steagall Act of 1933. Glass-Steagall enacted a firewall within banking companies between their vanilla commercial activities and the riskier activities of investment banking and insurance. After its passage, commercial banks catering to everyday clients and investment and securities firms consolidated, and their far larger size contributed to the problem of too big to fail firms during the crisis. Many also argue that bringing commercial and investment banking under one roof led to greater and greater risk taking, which eventually led to the financial crisis.
The act also created a big regulatory gap for large investment banks for a period of time by failing to give the SEC or another agency authority to regulate them. Instead, they could submit to voluntary oversight, but many simply opted not to.
Weakening Glass-Steagall was just one of the ways Gramm can be tied to the financial crisis, however. He inserted a provision in the Commodity Futures Modernization Act in 2000 that exempted complex derivatives — such as credit-default swaps — from regulatory oversight by the Commodity Futures Trading Commission. The lack of regulation meant that as the use of credit-default swaps grew in the lead up to the crisis, banks weren’t required to create backstops in case they failed, and once they all came crashing down amid the housing bubble’s burst, it left financial institutions exposed. Credit-default swaps took down AIG, leading to its bailout. – Think Progress
They say that we are to be judged in life not by our words, but by our associations, and if that is true then Ted Cruz has proven himself to be just as much as insider and bought and paid for politician as Marco Rubio, Ted Kasich, and Hillary Clinton. And if this weekend’s new partnership with one of the men who helped bring about the 2008 financial crisis is any indication, then should Cruz win the Republican nomination it will be very much be business as usual for the establishment, and the banks continuing to run the political process.
Kenneth Schortgen Jr is a writer for Secretsofthefed.com, Examiner.com,Roguemoney.net, and To the Death Media, and hosts the popular web blog, The Daily Economist. Ken can also be heard Wednesday afternoons giving an weekly economic report on the Angel Clark radio show.