Politicians love to imagine themselves as Winston Churchill, shaking a pudgy, defiant fist at Nazi Germany. Kansas Gov. Sam Brownback is no different. Speaking at a Rotary Club in Wichita on Monday, Brownback summoned the wartime prime minister to make a point about meeting the challenges of "sterner days," as Churchill put it.
Brownback's World War II nostalgia included criticism of the growth of the financial sector. He lamented the rise of "interesting instruments to change and trade money, rather than focus on how do I make something." Of course, as a U.S. senator, Brownback made it easier for Wall Street to expand its socially worthless but profitable activities.
Brownback, for instance, voted for the Gramm-Leach-Bliley Act, which eliminated banking reforms enacted in the Depression era. The law change permitted banks that did basic lending to take more risks. Financial writer John Cassidy explains the consequences:
Commercial banks, such as Chase Manhattan, merged with investment banks, such as J.P. Morgan. The remaining Wall Street firms, grappling with new competition in their traditional businesses, increased their borrowing and made riskier bets. Last year, Bear Stearns, Lehman Brothers, and Merrill Lynch had more than thirty dollars of investments on their books for every dollar of capital. Having borrowed so heavily, the firms were hostage to a withdrawal of credit on the part of their lenders. After the sub-prime-mortgage market collapsed, that was precisely what they faced.Before he left the Senate, Brownback worked hard to shield auto dealers from the oversight of a new consumer financial-protection agency. Brownback tried to put a populist spin on his efforts, saying "auto dealers are a part of Main Street, not Wall Street."
Ron Lieber, who writes about money at The New York Times, wasn't eating Brownback's apple pie, however. The Main Street argument makes sense, Lieber wrote last summer, "as long as you ignore that Wall Street firms bundle into bonds many of the loans that dealers help originate and conveniently forget that lots of dealers are actually owned by publicly traded companies."
Bond bundling? That sounds a lot like the "clever" activity Brownback rejected on Monday.
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