Don't Mess With Taxes

James Pethokoukis, the money and politics blogger for U.S. News & World Report, has an interesting piece today on a conversation he had with former Senator Phil Gramm.

The question Pethokoukis was looking to answer was whether the Texas Republican, who's now John McCain's campaign economic adviser, was at least partially to blame for the subprime crisis.

That charge has been leveled by political opponents who say 1999's Gramm-Leach-Bliley Act, that allowed banks, securities companies, and insurance companies to directly compete with one another, led to the creation of financial conglomerates. Those mega-financial businesses then starting offering ill-advised mortgage products to win the most customers.

Three guesses as to what Gramm had to say, and the first two don't count.

"I see no evidence whatsoever that the subprime problem was in any way caused by making our financial structure more competitive by allowing banks and securities companies and insurance companies to compete against each other. I have seen no evidence whatsoever to substantiate that claim," says Gramm.

You can read the rest of his comments here. And Pethokoukis promises more from his talk with Gramm in a future blog post.

Fox, meet hen house: As much as it pains me to agree with Gramm, the mere creation of ways for financial institutions to compete with each other and offer more products is not to blame. But the excessive extent of such competition is a natural by-product of such deregulation.

And it's no secret that self-enforcement is not effective. Just ask the mother of small children. They do what they want as much as they want until mom whacks their misbehaving behinds.

Even Dubya's administration admits that more needs to be done to rein in these companies, although the just-announced overhaul of financial regulators is already taking hits as too little, too late.

And the reality is that nothing substantive is going to happen here until after the November election.