When the first light of dawn struck the America of 2008, the promise that John McCain would play a role of central influence was already certain.  By the time he sat down with the editorial board of the Wall Street Journal on a January afternoon, he had been campaigning for the Repubican presidential nomination for eight months.  Considered to be next in line by the party, if only by virtue of his evisceration at the hands of Karl Rove in 2000, victory then was likely but not certain.  The WSJ editors were speaking with each major candidate for the nomination and Senator McCain’s turn had come on 21 January.  Notoriously thorough in these interviews, McCain brought a key senior advisor along in the event the Journal’s questions dug too deep into econ minutiae.  The advisor accompanying McCain to that interview – days after McCain admitted “the issue of economics is not something I understand as well as I should” – was former Senator Phil Gramm.

Photo: Associated Press

Gramm had been serving as a co-chair of McCain’s campaign and his go-to guy for economic answers since he announced his run.  The interview with the Wall Street Journal wasn’t his only appearance with McCain in the media; Gramm was a regular fixture anywhere economic policy needed to be detailed.  Six months later, nearly to the day, Gramm finally resigned his spot on the campaign after outrage over an ill-considered statement on the developing mortgage crisis.  It was Gramm’s conclusion in response to the financial system’s woes that Americans “have sort of become a nation of whiners, you just hear this constant whining, complaining about a loss of competitiveness, America in decline.”  The remark cost him the official position, but he has remained a close and trusted McCain advisor.

Two months after that – nearly again to the day – liquidity propping up much of the American financial system reaches critical scarcity.  Three of the five major investment banks are gone.  The two largest American mortgage backers are gone.  The largest single insurer on the planet is gone.  The American economy retreats to previously unimaginably small size with a correspondingly incomprehensible liability to the American taxpayer.  In a non-election year, members of both parties would be forming lines around the block ready for the heads responsible, platters in hand.  In an election year, even the courtesy of burning one witch at a time fails extension.

And in that hunt much scrutiny is getting leveled to the legislative culprit of Wall Street’s descent into derivative disaster.  That culprit would also happen to be the chief legislative achievment of one Phil Gramm.  The Gramm-Beach-Bliley Act is rightly assigned as that scapegoat; a bill revoking the Depression-era restriction on a single financial entity offering investment, commercial banking, and insurance services.  With the act’s passage, financial institutions of all sorts could merge and acquire, mixing the many different kinds of money in America into greater and greater collective pools.  As these pools began to grow, derivative financial products of those pools began to trade freely, all of them leveraged to levels previously considered insane and illegal.  With unfettered packaging and securitizing transcending former borders of propriety, the act fundamentally perverted the economy from wealth creating to wealth consuming.  It made irresponsible lending a financial boon.

Now, in an aftermath not yet fully realized, many are finding McCain’s right hand economic man the principal architect of Wall Street’s current predicament.  Had these financial entities not ever been allowed to consolidate, they argue, the faulty derivatives they bought and sold would never have existed.  Democrats of every stripe have levied the blame solely on Gramm’s work and, by association, John McCain.

Less frightening is the past mistake.  More terrifying is McCain’s continued reliance on the advice of Phil Gramm even in a week of such disaster.  At a rally in Michigan yesterday, McCain said something eerily similar to a pre-Meltdown Monday editorial written by Gramm.  Addressing another one of his pre-manufactured town hall meetings, McCain said, “If you like what tax increases have done to the economy here in Michigan, you’re going to love Senator Obama’s tax increases.”

One only needs to turn to the Wall Street Journal editorial page on 13 September – two days before America melted down – to see Gramm’s continued influence on McCain.  Phil Gramm’s editorial was entitled “If You Like Michigan’s Economy, You’ll Love Obama’s.”

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