Who's Whining Now? Gramm Slammed By Economists

Talk about words coming back to haunt you.

Phil Gramm, John McCain's former economic adviser, left the campaign in July when he tried to counter criticism of the Republican candidate's economic policies by asserting that the country "had become a nation of whiners" in a "mental recession."

Even McCain came forward to say that he disagreed with Gramm's remarks, adding that someone who'd lost their job "isn't suffering from a mental recession."

And Barack Obama is using Gramm's comments and his support of deregulation, which prompted some of the risky lending that caused the current financial crisis, in a new TV ad that questions McCain's ability to handle the economy.

"They think the economy's fundamentally strong," intones a voice-over in the ad. "We know they're fundamentally wrong."

Though Gramm, a former Texas senator, is no longer a member of McCain's close-knit team, he still seems to be assisting the campaign.

Last week, former Republican presidential candidate Ron Paul says Gramm, who is a vice chairman of the investment banking division at UBS, called to urge him to endorse McCain. Gramm also appeared in the audience at an Aspen Institute Forum featuring McCain last month.

Gramm's comments seem all the more stark with the financial upheaval of the past few weeks, including the government takeover of mortgage giants Fannie Mae and Freddie Mac, as well as the de facto takeover of largest insurer AIG.

"This is a mentality that doesn't understand the nature of systemic risks in financial systems," says Joseph Stiglitz, Nobel Prize-winning economist and former chairman of President Clinton's Council of Economic Advisers. "It's social Darwinism."

Economic experts say that Gramm and others are to blame for the current crisis that is shaking Wall Street.

Gramm's successful effort to pass banking reform laws in 1999, which reduced decades-old regulations separating banking, insurance and brokerage activities, helped to create the current economic crisis.

"As a result, the culture of investment banks was conveyed to commercial banks and everyone got involved in the high-risk gambling mentality. That mentality was core to the problem that we're facing now," Stiglitz says.

Lakshman Achuthan, managing director of the Economic Cycle Research Institute, also asserted that Gramm was mistaken, criticizing him and economic policymakers for not taking the risk of recession seriously enough.

"There is a recession -- that is clear and it doesn't make sense to blame middle-class folks," says Achuthan. "Policy holders should be held fully accountable for letting Wall Street run amok."

Achuthan agrees that Gramm's banking reform laws helped lead to the subprime mortgage crisis as commercial banks started taking enormous risks.

"We were setting up this bonfire years ago -- the deregulation, the inordinate amount of liquidity given to the system all set the stage for the bubble and the bust," he explains.

Gramm was not available for comment and a UBS spokesman declined comment on his behalf. "He's in back-to-back meetings all day and not very interested in doing interviews this week," said UBS spokesman Doug Morris.

Asked whether Gramm has any official or unofficial role in the campaign, McCain spokesman Brian Rogers said, "He is a supporter. He has no advisory role to the campaign."

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