Could McCain Have Come Up with a More Ill-Suited Economic Advisor Than Phil Gramm?

In the early evening of Friday, December 15, 2000, with Christmas break only hours away, the U.S. Senate rushed to pass an essential, 11,000-page government reauthorization bill. In what one legal textbook would later call "a stunning departure from normal legislative practice," the Senate tacked on a complex, 262-page amendment at the urging of Texas Sen. Phil Gramm.

There was little debate on the floor. According to the Congressional Record, Gramm promised that the amendment -- also known as the Commodity Futures Modernization Act -- along with other landmark legislation he had authored, would usher in a new era for the U.S. financial services industry.

"The work of this Congress will be seen as a watershed where we turned away from an outmoded Depression-era approach to financial regulation and adopted a framework that will position our financial services industry to be world leaders into the new century," Gramm said.

Watershed indeed. With the U.S. economy now battered by a tsunami of mortgage foreclosures, the $30-billion Bear Stearns Companies bailout and spiking food and energy prices, many congressional leaders and Wall Street analysts are questioning the wisdom of the radical deregulation launched by Gramm's legislative package. Financial wizard Warren Buffett has labeled the risky new investment instruments Gramm unleashed "financial weapons of mass destruction." They have fed the subprime mortgage crisis like an accelerant. While his distracted peers probably finalized their Christmas gift lists, Gramm created what Wall Street analysts now refer to as the "shadow banking system," an industry that operates outside any government oversight, but, as witnessed by the Bear Stearns debacle, requiring rescue by taxpayers to avert a national economic catastrophe.

While the nation's investment bankers are paying a heavy price for their unbridled greed (in billions of dollars of write-offs), Gramm has fared quite nicely. He currently serves as a vice president at UBS AG, a colossal, Swiss-owned investment bank, the post, no doubt, a thank you for assiduously looking out for Wall Street interests during his 23 years in public office. Now, with the aid of his longtime friend Arizona Sen. John McCain, Gramm may be looking at a quantum leap in power and influence.

Gramm serves as co-chair of the McCain 2008 presidential campaign. As one of the candidate's chief economic advisers, he is mentioned as a possible secretary of the treasury in a McCain administration. Their friendship was forged in the Senate as they worked against the Clinton health care proposal, and cemented when McCain served as national chairman of Gramm's own (ill-fated) 1996 presidential bid.

During McCain's rocky road to the nomination, it was Gramm as much as anyone who helped smooth the way. Last July, when it looked as though McCain's campaign would go bankrupt, Gramm, who once called money "the mother's milk of politics," advised him to slash his costs and assisted him with fundraising. Throughout the marathon primary season, Gramm has made numerous appearances with McCain and served as an ambassador to conservative groups. This spring, when conservative commentators attacked McCain as too liberal, McCain shored up his conservative bona fides by (according to The Huffington Post) bringing Gramm to a meeting with the editorial board of The Wall Street Journal.

But ask Gramm about his influence with McCain and it's clear that the former senator has not lost his talent for political spin. "My position [with the campaign] is, I am the senator's friend," he aw-shuckses in a telephone interview. "It would be a mistake to call me an economic adviser." Calling himself "a private citizen," Gramm claims ignorance of McCain's appearance two days earlier on Jon Stewart's The Daily Show.