by Nomad
To Return to Part One
In part two of this four-part series, we will continue to look at Phil Gramm, mentor to Rick Perry, presidential candidate. At this point, we shall continue with Gramm's career following his retirement from the Senate.
Gramm at UBS
When Phil Gramm announced on September 4 2001 that he would retire at the end of his term in 2003, his retirement speech was filled with self-congratulatory flatulence.
Remarkably, the things I came to Washington to do are done. Now, I know that no victory is ever final...I will leave the Senate in 15 months, being very proud that I came, and extraordinarily proud in what I've done while I've been here... But I feel comfortable with this decision. I believe I'm making the right decision for me, for the 20 million people I represent, and for the things I believe in.
Despite the fact that he spoke to reporters with “his voice cracking and his tears filling red-rimmed eye,” he had no intention of spending his autumnal years, tending his garden and painting landscapes. In fact, he was about to begin a new career, one that would surpass all his other accomplishments from the past.
Within about a year, the Zurich-based financial giant, UBS announced that Gramm would join the firm as vice chairman of UBS Warburg. According to the press release by UBS, Gramm was to be in charge of advising clients “on corporate finance issues and strategy.”
UBS Warburg CEO John Costas said in the news release:
"Senator Gramm's experience gained from more than 35 years in academia and government make him uniquely suited to assist our clients to meet the challenges presented by today's business environment."
Like most things related to Gramm, nothing is quite what it seems.Earlier that year, Gramm showed his true colors by being one of the few legislators who refused to back the Sarbanes-Oxley Corporate Reform Bill. The bill, as weak as it was, sought to provide at least some degree of governmental oversight over corporations. This piece of legislation came as a result of collapse of Enron Corp.
(We shall go into the unique role that the Gramm’s played in the Enron meltdown in the examination of Wendy Gramm, who served as a member of Enron's board of directors and a member of the board's auditing committee.)
The appointment of Gramm to the UBS corporate family did not please everybody. In a scathing open letter, dated 17 March 2003, to the then Chairman of the Board of Directors of UBS, Mark Ospel, Andreas Missbach, foreign policy editor of the Swiss weekly Wochenzeitung, lists reasons why the decision to hire Gramm was inappropriate. The letter opens with:
We are troubled by the recent appointment of former U.S. senator Phil Gramm as a Vice Chairman of UBS. Mr. Gramm’s professional and personal connections to Enron have disgraced his reputation. We believe that UBS’s association with Gramm seriously undermines your company’s professed commitment to corporate responsibility. At a time when investors and the general public need reassurance that our financial institutions are scrupulous, we ask UBS to place Mr. Gramm on leave until all criminal and civil investigations into Enron’s wrongdoing are complete. During his tenure in Congress and as a member of the Senate Banking Committee, Senator Gramm was the most vocal advocate for Enron, pushing legislation that removed government regulatory authority over the company and exposing it to negligence and fraud..
Following a list of Gramm’s Enron connections, it concludes with:
Together, the Gramms facilitated Enron’s misdeeds, which victimized thousands of U.S. consumers. Ethical leadership was clearly lacking as well in that company. Especially in these economically beleaguered times, UBS has a duty to both promote and demonstrate corporate ethics—to truly make, as Mr. Ospel says on the UBS website, “corporate responsibility part of our culture and part of our identity.” As consumer advocates, civil society groups, and unions, we urge UBS to disassociate itself with the corporate deceit which Phil Gramm represented in Congress. We urge you, Mr. Ospel and Mr. Wuffli, to renew your company’s commitment to corporate integrity by removing Mr. Gramm from his position as Vice Chairman until he is cleared of any involvement in Enron’s transgressions.
This wise advice was ignored mainly because, over a year before that, according to a New York Times article, UBS Warburg had already won the bidding war for its energy-trading business, which was the crown jewel of Enron and was responsible for about 90 percent of its revenue. According to some, UBS Warburg was, in fact, the new Enron and it’s hard not to agree. As one source says:
In addition to obtaining the business, UBS Warburg acquired two Enron skyscrapers and took aboard 650 former Enron employees, including executives John Lavorato and Louise Kitchen, who had taken the company’s largest bonuses after the bankruptcy ($5 million and $2 million), and Greg Whalley, Enron’s former president.
In addition to his executive position, Phil Gramm worked with UBS as a lobbyist and was paid by the Swiss bank to lobby Congress on mortgage-related legislation. According to the nonprofit advocacy organisation Common Cause, the mortgage lending industry spent nearly US$210 million between 1999 and 2006 in lobbying activities as well as political campaigns contributions to both Democratic and Republican politicians that helped persuade the US Congress to refrain from passing regulation that would restrict predatory lending practices.
But for the moment, I’d like to concentrate on Gramm’s work with UBS as it relates to Rick Perry.
When One Hand Washes the Other
Phil Gramm’s relationship to Rick Perry is, by no means, merely a case of like-minded political association. Nor is it just a mentor and student relationship. Let me explain by giving an example..
When the Gramms contributed to Rick Perry’s campaign for governor, it was given not without expectations. When then-Senator Phil Gramm retired from Congress,, he transferred $610,000 - the largest same-day contribution of the governor’s political career.
Dutifully, Governor Perry appointed Wendy Gramm to the Texas A&M Board of Regents and to the Texas Reform Tax Commission. Dr. Wendy Lee Gramm is, in fact, a stunning example of Perry’ patronage system at work. She sits at the top of a long list of high-dollar contributors who have been rewarded by Rick Perry with official appointments. And this wasn’t merely a favor to the Gramms. It was a well-established practice in the Perry administration.
According to a September 2010 study on Perry’s patronage system by Texans for Public Justice:,
Led by Wendy Gramm, Governor Perry collected more than $2 million from 14 of the 18 people he tapped as A&M Regents. Other A&M regents who gave the governor more than $200,000 apiece are:
- Clear Channel Communications founder Lowry Mays (father-in-law of Congressman Michael McCaul),
- insurer Phil Adams,
- Ex-TXU Corp. chief Erle Nye, and
- the late Dallas car dealer J.L. Huffines.
But there’s more to it than merely auctioned-off political appointments. And it was more than just finding a suitable hobby for a bored spouse.
At about the same time that Phil Gramm was finding work for his wife, he was also pitching a scheme to make it legal to sell “dead peasant” life insurance to the Teacher Retirement System. Basically, Gramm, the architect of the scheme, pitched the plan to Perry on behalf of UBS, which would “help Wall Street investors gamble on how long retired Texas teachers would live.” Perry was promising the state big money in exchange for helping Swiss banking giant UBS set up a business of teacher death speculation.
"Dead peasant" insurance is such a deal that Wal-Mart and lots of big companies do it. See, a company like Wal-Mart takes out life insurance on low-wage employees (that would be Texas teachers), then it gets to deduct the premiums from its taxes. And when the employee dies, the company gets a benefit between $64,000 to more than $250,000...Under the UBS plan, the Retirement System would buy annuities and life insurance policies on retired teachers and keep the proceeds when they die. Of course, the investment and insurance industries would profit from the premiums and brokerage fees.
The meeting notes show Insurance Commissioner Jose Montemayor, a Perry appointee ... claiming that "this arrangement" was already being utilized by "some very rich people" who had set up similar plans to benefit the University of Texas and Texas A&M....The source says the claim involving a similar program benefiting the Texas universities turned out to be untrue... Montemayor, as insurance commissioner, would have had to waive "insurable interest" regulations to allow the schools to buy life insurance on their professors. There is no public record that he did so. The University of Texas and Texas A&M did not return requests for comment.
When it comes to Gramm’s part in the insurance scheme, there is really no question of coincidence.
His role in the scheme had the appearance of banal corruption and cronyism. Although Gramm wasn't in on the first meeting with teacher groups, he played an active role in subsequent efforts to push the scheme. It was Gramm who could make the plan a financial reality. He left the U.S. Senate in November 2002 for a lucrative vice president post at UBS. After Morrissey, Montemayor and Perry budget aide Brian Guthrie first articulated the plan on Nov. 12, Gramm came to Austin to help push the deal.
That move eventually prompted Texas Democrats to file an ethics complaint against Gramm for making a the pitch without registering as a lobbyist. Gramm was hoping to put together a new package of complex assets for speculators to gamble on. Corporations had been using mass purchases of life insurance policies on their employees for years as part of an elaborate tax avoidance scheme (the government doesn't tax insurance premiums or death benefits). The employees themselves -- affectionately referred to as "dead peasants" among insurance experts -- received no benefit. Only the companies who bought the policies would receive payouts when these "peasants" died. Gramm wanted to convince investors to bet on peoples' lives by purchasing pools of life insurance and annuities taken out on individuals.
The whole plan was fishy from top to bottom and almost immediately people began to question whether it was such a terrific idea.
Some questioned whether it was even legal. But for that, Perry had his answer. According to state laws, the plan would have faced some legal hurdles Perry and his staff were prepared for minor obstacles such as laws. According to the article,It should be noted that the Perry-Gramm scheme is a take-off on similar private-sector plans... These private sector schemes also have come under fire from critics who note that they work only because of the tax breaks that accrue to the companies when they buy the life insurance. In effect, the companies are using the taxpayers to fund their benefit programs rather than using their corporate profits.It doesn't take much imagination to realize that if the Perry-Gramm scheme is adopted, the Texas taxpayers will end up footing the bill not only to shore up the retirement system health plan, but also to pay millions of dollars in commissions and fees to UBS.
Montemayor was happy to bend the law. He agreed to grant a special waiver on insurance regulations that would allow the deal to go through, according to meeting notes."There was some worry about the legality," recalled the attendee. "[Montemayor] said 'Don't worry about it.' He could take those questions off the table as the insurance commissioner."
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| Ray Sullivan |
Gramm wasn’t the only suspicious member in the insurance scheme. For another example of the blurred line between government official and paid lobbyist, take the case of Ray Sullivan. Sullivan got his start working under Karl Rove as the backup spokesman for then-Gov. George W. Bush.
Then, between 1998 and 2002, Sullivan worked in various roles the Perry operation, including as the governor’s deputy chief of staff, lieutenant governor’s communications director, and communications director for the 1998 and 2002 campaigns. However, when negotiations began on the insurance plan, Sullivan was working as a political consultant and lobbyist in Austin for UBS in May 2003. Eventually the deal fell apart in December 2003, after the plan was leaked to the press. So back Sullivan went into the political scene. By 2009, Gov. Rick Perry named Ray Sullivan as chief of staff again.
This revolving door between the private and the government sectors is a trademark of any Perry administration. If you are wondering if this legal the answer is probably not. But this is Texas and since practically everybody is on the take, it really doesn’t matter much.
Another scheme Gramm as a federally registered lobbyist for UBS, attempted to foist on the good people of Texas was the sale of the Texas lottery to a private company. According to the New York Times,
Called “Project Lonestar” within UBS, a long-term lease of the Texas lottery could generate at least $10.1 billion for the state, according to an internal UBS document obtained through a Freedom of Information Act request from The New York Times.
For UBS, Gramm would be a key link to Perry. And the chain of contacts can easily be followed right to the governor’s office. Phil Wilson, a former aide to Gramm for nearly a decade, was now working in Perry’s office, first as communications director for a year and then as his deputy chief of staff. Wilson pushed the privatization idea to Perry after a conversation with Gramm, according to a New York Times interview.
At that time, the Texas lottery generated a little more than $1 billion a year in state funds which were earmarked for public education. By auctioning off the lottery, Perry stated that it could generate an immediate windfall of at least, $14 billion. Perry used his State of the State address to propose selling the state lottery as a way to fund cancer research and health insurance for as many as 600,000 low-income Texans.
However, according to critics of the plan, “the only way to generate such a humongous sales price is to aggressively offer new games to new players in new gambling venues across the state.” Furthermore, what Perry also failed to mention was that the proposal would also cut the earmark to education by $250 million annually.
Questions also arose about what part of the Texas population would be contributing to the revenue. The wealthy, who could afford it, or the poor who were prepared to gamble away whatever little they had for a dream win.
According to Houston Chronicle,
According to Houston Chronicle,
The billions of dollars that investors would pay to run the Texas Lottery would come out of the pockets of Texas families. While some of the proposals that the governor’s office received say that they would target the middle class rather than the poor, the state has repeatedly failed to accomplish such a shift. Last year the Texas Lottery Commission introduced a $50 scratch-off ticket to attract higher-income players. Subsequent studies by the Houston Chronicle and the San Antonio Express-News showed that people residing in zip codes with median incomes of $20,000 or less were 22 percent more likely to buy these tickets than those who lived in zip codes earning more than $90,000....
The bulk of the billions of dollars that Texas would make privatizing the Texas Lottery would come out of the pockets of Texas’ poorest families. And these Texans are the ones most likely to require additional public services when their pockets are picked.With Gramm at the helm, UBS felt assured that it would have an advantage in the proposed auction of the lottery. And this effort by major financial institutions to corner the market on state lotteries was not restricted to Texas. California, Massachusetts, Illinois Indiana and others had been mulling over the same ideas. As the New York Times article points out:
Wall Street firms, which already enjoy close relationships with state governments nationwide as underwriters of municipal bonds, stand to earn at least $100 million in fees from leasing the California lottery alone — which is why they have quietly emerged as prime architects of the idea.
The reception to the privatization plan was lukewarm. Think lead balloon. According to the Houston Chronicle, even fellow Republicans called Perry’s numbers into question.
Sen. Robert Duncan, R-Lubbock, who heads the Senate State Affairs Committee, where the proposal would likely land, raised questions about the numbers. Rep. Warren Chisum, who chairs the powerful House Appropriations Committee, said he didn’t know “anyone who’s supporting it.”
In the end, UBS has probably come to regret its decision to hire Gramm. Much of his promise as insider has not panned out. As Slate.com points out:
Sen. Robert Duncan, R-Lubbock, who heads the Senate State Affairs Committee, where the proposal would likely land, raised questions about the numbers. Rep. Warren Chisum, who chairs the powerful House Appropriations Committee, said he didn’t know “anyone who’s supporting it.”
In the end, UBS has probably come to regret its decision to hire Gramm. Much of his promise as insider has not panned out. As Slate.com points out:
As this one-year chart shows, UBS's stock lost nearly 70 percent of its value and now stands at levels not seen since 2002, when Gramm signed up.
But before you get out your hanky and attempt to shed your tears for UBS, it should be recalled that UBS’ forays into unregulated speculation- which has been the source of its present woes- came as a result of Phil Gramm’s legislative efforts in Senate. What goes around comes around but ultimately the profits usually stayed in the Gramm pocket.
Critics have charged that Gramm's action as a senator helped lay the groundwork for some of the problems in the housing and oil markets. But it's hard to pin any of the UBS debacles on the former Texas senator. At UBS, Gramm held the post of vice chairman, a position Michelle Leder dubbed in these pages as "the greatest job in business" for its combination of high status and low work rate. Gramm was a lobbyist and adviser, not an operating executive. And he had nothing to do with the forces that impelled banks and banking executives into foolish behavior in recent years; cheap money, greed, and a bubble mentality are far bigger than Gramm. But UBS's continuing travails should lead us to wonder how effective Gramm is as an elder statesman. As an adviser, an economist, an expert in the ways of Washington and in the American financial system, part of Gramm's job surely was to advise the bank how to stay out of investment and regulatory trouble.
But no matter how deep in the muck UBS might sink, there was always the American taxpayer to come to the rescue of a bank in trouble.
As Bloomberg reported in 2008, the Fed secretly provided selected banks, brokerage houses, and even non-financial firms (such as General Electric and Ford) with at least $1.2 trillion in loans, often with minimal collateral required and at below market interest rates.
UBS AG, Switzerland's biggest bank by assets, received a capital injection of 6 billion Swiss francs ($7.12 billion) from the Swiss government in October 2008. The next month, the Zurich-based lender borrowed $77.2 billion from the Federal Reserve after customers removed a net 83.6 billion francs from its money-management units in the hree months through September... A UBS spokeswoman declined to comment on whether the bank also tapped the Swiss National Bank or other central banks for liquidity.
According to the article, the Fed made a great deal of effort to hide this questionable use of government money, burying it in 29,000 pages of documents and 18 Fed-prepared Microsoft Excel spreadsheets. (Much of the information came out as a result of “Freedom of Information Act requests by media outlets including Bloomberg News and related federal court orders.)
That’s understandable, of course. Bail-outs of American-based financial institutions are bad enough but Americans have every right to inquire how the Fed can justify bailing out foreign- banking giants as well.
But, of course, according to what Phil Gramm assured us back in 1999, all this de-regulation was supposed to make American banking institutions more competitive to foreign banks- like UBS. Who would have thought they have to come begging for a hand-out too?
Update: Since the time of writing this post, problems at UBS have worsened still. Victims of the Gramm curse?
The Difference Between Love And Prostitution
The Difference Between Love And Prostitution
Summing up Phil Gramm’s colorful and notorious career, which pretty much careens drunkenly from one act of wrongdoing and misconduct to the next, is not easy.
Here is an excellent story that seems to fit the bill.
The trial of George Ryan, a former governor of Illinois charged with fraud and racketeering, got a jolt on November 17th, thanks to the testimony of a former senator. In 1995, Mr Ryan, then Illinois’s secretary of state, endorsed the presidential campaign of Phil Gramm, a Republican senator from Texas. Prosecutors charge that Mr Gramm’s campaign paid Mr Ryan an $11,000 “consulting fee” in exchange for his endorsement; Mr Ryan claims he earned the fee by introducing Mr Gramm to local political figures.
In court, Mr Gramm testified that he did not know his campaign was paying Mr Ryan for consulting, nor would he have approved such a payment, because, he explained, “it’s sort of like the difference between love and prostitution. You don’t pay people to like you.”The comment caused a ruckus in the courtroom and beyond: the judge asked Mr Gramm to curb his thoughts on prostitution, while Mr Ryan lashed out by telling television crews that Mr Gramm may have been involved in the scandal over Enron, adding testily, “If Senator Gramm wants to use the word prostitute, perhaps he should look within.”
Touche, Mr. Ryan!
Not unlike Cheney or Bush or Rove, Phil Gramm still walks freely among law-abiding citizens. Moreover he still considers himself a kind of authority about economics and politics. (Similar to Bristol Palin being permitted to discuss the need for abstinence.) When called upon to explain himself and his role in the economic meltdown, Phil Gramm refuses to take responsibility. He is still talking about de-regulation as the savior of the US economy. Still using meta-language and murky jargon of economists to cloud what is clear. And worst of all, still promoting his disastrous policies only now through the candidacy of his former student and partner in political corruption, Rick Perry.
According to a Time article, some people, however, are willing to call Phil Gramm out.
Hmmm. an interesting remark indeed. Capitalism, corrupted and sabotaged, has no doubt made Phil Gramm prosperous and it has made him, if not free, then relatively cheap. With regard to the second part of that statement, we must ask Mr. Gramm: Who exactly have become prosperous and free and who have lost their jobs, their homes and their life savings? I can’t imagine that is the freedom, Mr. Gramm is speaking of."Why are you just so afraid to say this whole system is bankrupt and the whole thing should just be reorganized?" someone from the audience asked after Gramm finished his lecture. "Why don't you just let it go?" "First of all I think that's a good question," Gramm responded. But then he offered something of a personal credo: "I would be a little concerned about letting capitalism go, because it made me prosperous and free and it made my country prosperous and free."
When Gramm announced his retirement from the Senate, Governor Perry put out the press release.
“In a state filled with tales of legendary statesmen, Sen. Phil Gramm stands in a league of his own. It’s hard to imagine where this state would be without the fearless, dedicated service of this man. He has been a spirited protector of the men and women of this state and the ideas they hold dear. I have been proud to call him my senator, and even prouder to call him my friend. I know without a doubt that even though Sen. Gramm is leaving his role in the U.S. Senate, he will continue to work for the greater benefit of our state and our nation.”
The statement is so full of hindsight irony that, if the mainstream media had done its job, it would instantly have rendered Rick Perry, the student, protege, and good ol’ boy of Phil Gramm, the 2012 presidential election's laughing stock candidate.
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In the next posts, we will turn our spotlight upon Phil Gramm’s wife, Wendy, whose own extraordinary achievements, while nothing to be be proud of, at least, prove her to be a worthy match to her husband.
To continue to PART THREE
