Gramm's actions on economics, and Wall Street risks.
Article on Phil Gramm and McCain's economic and health care plans, from February of this year.
http://money.cnn.com/2008/02/18/news/newsmakers/tully_gramm.fortune/index.htm
*****
Foreclosure Phil: http://www.motherjones.com/news/feature/2008/07/foreclosure-phil.html
"But the Enron loophole was small potatoes compared to the devastation that unregulated swaps would unleash. Credit default swaps are essentially insurance policies covering the losses on securities in the event of a default. Financial institutions buy them to protect themselves if an investment they hold goes south. It's like bookies trading bets, with banks and hedge funds gambling on whether an investment (say, a pile of subprime mortgages bundled into a security) will succeed or fail. Because of the swap-related provisions of Gramm's bill-which were supported by Fed chairman Alan Greenspan and Treasury secretary Larry Summers-a $62 trillion market (nearly four times the size of the entire US stock market) remained utterly unregulated, meaning no one made sure the banks and hedge funds had the assets to cover the losses they guaranteed."
Interesting little side bar on Subprime mortgages/"credit default swaps", too.
Gramm does not believe he is responsible for what he has done, and is now a lobbyist for USB, Switzerland's largest bank. If McCain wins the election, Gramm may end up as his Treasury Secretary.
*****
Now on what happened with Lehman Brothers, and what sort of risky behavior they were doing to raise huge profits, and now dealing with huge losses. Risk, dear folks, can pay off in big dividends while the going is good, but when the house of cards it is based on, or in this case, risky sub-prime mortgages falls, that's when Wall Street risks, and businesses based on them, tumble quickly down.
http://money.cnn.com/2008/09/15/news/companies/lehman_endofwallstreet_tully.fortune/index.htm
The game Wall Street played relied on leveraging up the cash provided by shareholders to enormous levels and using all the debt to accumulate a giant portfolio of securities.
As long as interest rates trend downward, the value of that portfolio swells, yielding gigantic returns on a slim equity base. And, with the exception of a few scary blips caused by the Asian currency crisis and the tech meltdown, that's what happened for most of Lehman's existence since it was spun off by American Express in 1994.
Based on a huge surge in profits, the employees arrange to take compensation in amounts unheard of outside of sports and Hollywood.
This model has an obvious, and fatal, flaw. Earnings on Wall Street no longer come chiefly from recurring businesses but rather from a combination of huge leverage and huge risk. When good luck turns, as it did in the credit crisis that began just over a year ago, the shareholder wealth supporting all that leverage gets wiped out.
That's precisely what happened at Lehman. Its shares are trading today at around 20 cents, meaning that outside of the dividend that the firm slashed last week, Lehman managed to destroy wealth for shareholders. The employees, though, took out tens of billions in excess pay that's parked in mansions, yachts and stock portfolios.
Just so you all know, I am very conservative when it comes to financial matters. Risky investments are fine if you want to make it rich relatively quickly, and are willing to take the RISKS associated with larger returns. I can't afford to do that, so I don't like much risks in my investments. And this is an example of how risks can burn people, too. One just has to be willing to get burned, too... that is what taking a risk is all about. So, I don't feel sorry for the ones involved. Maybe if they played their cards right, and shuffled their money to off-shore accounts, they can hold onto their mansions and yachts - unless and until the Feds come in and press charges and require large, hefty fines. Not holding my breath for that.