Tag Archives: UBS Securities

Are Our Economic Problems Just in Our Minds? John McCain’s Chief Economic Advisor Thinks So

Are the nation’s economic problems — the financial crisis, the mortgage meltdown, the tidal wave of foreclosures, soaring gas prices, increasing job losses, and a tumbling dollar — only in our minds?

It appears that Phil Gramm, John McCain’s chief economic advisor and co-chair of his presidential campaign, thinks so.

He also thinks that those of us who are seriously troubled by the state of the economy are “whiners.”

In an interview in yesterday’s Washington Times, Gramm said that “this is a mental recession. We may have a recession; we haven’t had one yet.”

Gramm says that Americans have “become a nation of whiners.” 

Americans, according to Gramm, are constantly “complaining about a loss of competitiveness, America in decline.”

“You just hear this constant whining,” he said.  “Misery sells newspapers,” Gramm said.  “Thank God the economy is not as bad as you read in the newspaper every day.”

What also sells newspapers are bone-head comments from key advisors to presidential campaigns.

We said last month that Gramm was on thin ice in the McCain campaign because of his ties to the mortgage meltdown and financial crisis

As a U.S. Senator from Texas, Gramm spearheaded sweeping changes in federal banking law, including the Gramm-Leach-Bliley Act in 1999, which repealed previous rules separating banking, insurance and brokerage activities, and which some analysts blame for creating the legal framework for the current mortgage meltdown and credit crisis.  For that effort, Gramm has been called “the father of the mortgage meltdown and financial crisis.”

In addition, Gramm is currently vice chairman of UBS, the giant Swiss bank that has been a major player in the U.S. subprime mortgage crisis.  While advising the McCain campaign, Gramm was paid by UBS to lobby Congress to roll back strong state rules that sought to stem the rise of predatory tactics used by lenders and brokers to place homeowners in high-cost mortgages.

Gramm’s leadership role in UBS — whose stock has fallen 70 percent from last year — also raises questions about his economic, and not just his political, judgment. 

As a recent article in Slate.com observes, “UBS’s investment banking unit made disastrous forays into subprime lending. Last December, having already announced a third-quarter loss, UBS raised about $13 billion to replenish its balance sheets, mostly from the Government of Singapore Investment Corp.  In the fourth quarter of 2007 and the first quarter of 2008, it racked up Mont Blanc-sized losses on subprime debt of nearly $32 billion. In May, it sold about $15 billion worth of mortgage-related assets to the investment firm BlackRock — but only after it agreed to finance most of the purchase price. In June, UBS raised another $15.5 billion in a rights offering. The credit losses — some $38 billion so far, according to UBS — caused the bank to replace its chairman and install new leadership at its investment bank.”

In addition, Massachusetts has charged UBS with defrauding customers who had purchased auction-rate securities. UBS is accused of “selling retail brokerage customers products that turned out to be profitable for the bank’s investment banking unit but caused the customers to suffer significant losses.”

UBS is also the subject of an ongoing federal investigation, in which Bradley Birkenfeld, an American UBS private banker who was busted on tax evasion charges, has plead guilty and is cooperating. 

UBS has also recently paid millions of dollars to settle a lawsuit with the victims of a 1031 exchange scam.  UBS was one of several defendants who were alleged to have participated with Donald Kay McGahn and and others in a scheme to steal the money that had been entrusted to them to facilitate tax deferred 1031 exchanges.

And most recently, the Financial Times, which called UBS “Europe’s biggest casualty of the US subprime crisis,” reported that UBS’s write-downs could total another $7.5 billion.  UBS’s stock fell 7 percent in trading on Monday.

With that resume, we think it would be best for everyone, not least John McCain, if Phil Gramm was no longer introduced to voters as “John McCain’s chief economic advisor.”

UPDATE:

As of July 18, Gramm has resigned as co-chair of McCain;s presidential campaign.

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Obama and McCain Discover that Ties to Countrywide and Banking Industry are Political Kryptonite

Given its central role in the subprime mortgage debacle, it is no surprise that Countrywide Financial has become politically radioactive.

The most recent evidence for the politically deadly consequences of an association with Countrywide or its corporate officers is the sudden and ungraceful exit of businessman James A. Johnson, a long time Washington insider and lobbyist, from Barack Obama’s vice-presidential selection team.

Johnson was chosen by Obama to lead the group, which also includes Caroline Kennedy Schlossberg and Eric Holder, that would help him select a running mate. The appointment seemed obvious, if uninspired, since Johnson is an old Democratic Party insider who played a similar role in selecting the vice presidential choices for both Walter Mondale and John Kerry.

But last week, Johnson came under withering fire for his association and possible sweetheart deals with former Countrywide chairman Angelo Mozilo. Specifically, Johnson was charged with having profited from special sweetheart deals on three home loans, with usually preferential mortgage terms, approved by Mozilo as the head of the Countrywide only for his close friends.

Bloomberg.com reports that “Angelo Mozilo, the chief executive officer of Countrywide, the biggest U.S. home lender, may have given Johnson and other friends good deals on mortgages, the Wall Street Journal reported on June 7, citing unidentified people familiar with the matter. The newspaper didn’t provide any specifics on whether favors were granted. Since then, Johnson’s position on the search committee has drawn criticism from Republicans who noted that Obama, the presumptive Democratic nominee, repeatedly denounced Countrywide for its role in the subprime-mortgage crisis.”

It was soon discovered that Johnson had other political liabilities, including criticism for his role as chairman and chief executive officer of the Federal National Mortgage Association (Fannie Mae) from 1991 to 1999, and also faced questions about his role on corporate compensation committees that awarded large payouts to corporate executives.

As New York Times columnist Gail Collins pointed out, “Johnson is the former head of Fannie Mae, which under his direction, according to regulators, engaged in accounting practices that were, at best, sloppy. At the same time, he sat on the boards of five different corporations, where he appeared to serve as cheerleader for the theory that corporate executives deserve to be paid obscene amounts of money. How does someone go up to Barack Obama, who once sponsored a bill to curb excessive executive compensation, and say — ‘You know the vice-presidential search committee? For chairman, how about Jim Johnson? Remember, the guy who tried to give the head of United Health Group $1.4 billion in stock options?'”

Although Republicans are pleased with Johnson’s departure — or at least with the embarrassment to Barack Obama caused by the Johnson episode — John McCain has his own toxic subprime-association worries.

Former Senator Phil Gramm (R-Texas), now serving as John McCain’s chief economic advisor, has been called “the father of the mortgage meltdown and financial crisis.”

Gramm spearheaded sweeping changes in federal banking law, including the Gramm-Leach-Bliley Act in 1999, which repealed previous rules separating banking, insurance and brokerage activities, and which some analysts blame for creating the legal framework for the current mortgage meltdown and credit crisis.

In addition, New York Times columnist Paul Krugman observed that “According to federal lobbying disclosure records, Gramm lobbied Congress, the Federal Reserve and Treasury Department about banking and mortgage issues in 2005 and 2006. During those years, the mortgage industry pressed Congress to roll back strong state rules that sought to stem the rise of predatory tactics used by lenders and brokers to place homeowners in high-cost mortgages.”

Gramm is also under fire for his connection with Swiss investment banking giant UBS, which is the subject of a federal investigation into whether it helped wealthy clients to use offshore accounts to hide as much as $20 billion in assets from the Internal Revenue Service and dodging at least $300 million in federal taxes. Gramm is vice-chair of UBS Securities, UBS’s investment arm.

The New York Times reports that “The case could turn into an embarrassment for Marcel Rohner, the chief executive of UBS and the former head of its private bank, as well as for Phil Gramm, the former Republican senator from Texas who is now the vice chairman of UBS Securities, the Swiss bank’s investment banking arm.”

So far, McCain has rejected calls to remove Gramm from his inner circle. But our guess is that, fairly soon, Gramm will join Jim Johnson in the growing Class of 2008 Ex-Presidential Candidate Advisors Club.

UPDATE:

For more on Phil Gramm, John McCain, and UBS, click here.