This story originally appeared at Truthdig. Robert Scheer is the author of The Great American Stickup: How Reagan Republicans and Clinton Democrats Enriched Wall Street While Mugging Main Street (Nation Books).
Mark the name of R. Glenn Hubbard, the man who will make your life miserable if Mitt Romney is elected president. Unless, that is, you happen to be one of the swindlers who has profited mightily from the nation’s economic pain.
Hubbard is the ideological hit man instrumental in justifying the mortgage derivatives bubble that caused the Great Recession during the George W. Bush years. He now serves as Romney’s key economic adviser and is the front-runner to be the next Treasury secretary should the Republican win.
“Romney’s Go-To Economist” read the headline on a New York Times profile of the dean of Columbia University’s Business School, which notes that “during a stint as chairman of the Council of Economic Advisers for President George W. Bush, from 2001 to 2003, Mr. Hubbard was known as the principal architect of the Bush tax cuts.” In that capacity, and after returning to Columbia, Hubbard was also the chief cheerleader for a runaway derivatives market that spiraled out of control and left the Great Recession in its wake.
While pocketing millions in fees from the financial industry that he was ostensibly studying as a neutral academic, Hubbard was an enthusiastic backer of the virtues of a burgeoning unregulated capital market that sold toxic derivatives to the world. In a landmark paper that he co-wrote in November 2004 with William C. Dudley, at the time the chief US economist at Goldman Sachs, it was asserted, “The capital markets have helped facilitate a major transformation of the US mortgage financing system over the past twenty-five years.… The result has been a dramatic decline in the cyclical volatility of housing activity.”
Their study was published by the Global Markets Institute of Goldman Sachs at the very time that Goldman, a leader in the capital market, was packaging and selling some of the toxic mortgage-based derivatives that would come close to destroying the world’s economy.
Hubbard’s article celebrated this “revolution in housing finance [that] has led to a large increase in mortgage equity withdrawal.” It extolled the madcap equity lending as “one reason why consumer spending held up well during the 2001-2003 period, even as employment and investment spending faltered.”
That’s the housing bubble that was destined to pop and left the Bush and Obama administrations running up huge deficits to contain the damage. Hubbard’s co-author knows this well, for Dudley left Goldman in 2007 to work for Timothy Geithner, then the head of the New York Fed that led the charge to rescue Goldman and other banks in the aftermath of the crisis they caused. As evidence of the bipartisan spirit informing the banking bailout, when Geithner was appointed Obama’s Treasury Secretary, Dudley replaced him as president of the New York Fed.
But this is a crisis first enabled by the Bush administration’s policy of mindlessly celebrating the mortgage industry’s wild irresponsibility. As Hubbard and Dudley bragged: “The revolution in mortgage finance has increased the ability of households to purchase their own homes. The closing costs associated with obtaining a residential mortgage have fallen, and the terms (for example, the loan-to-value ratio) have become less stringent. At times homeowners can obtain 100 percent financing to purchase a home.”
This is the mortgage bankers’ equivalent of The Anarchist Cookbook—a recipe for disaster. The 100 percent loan meant that the homeowner was not at risk, nor was the investment firm that initiated the mortgage because it packaged it, along with other irresponsible loans, into securities sold to unwitting buyers.
In the paper published by Goldman, the authors take issue with Warren Buffett who as early as 2002 had warned that these “derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.” Buffett argued that “huge–scale frauds and near frauds have been facilitated by derivatives trades.”
Not so, said Hubbard and Dudley, siding with then–Fed Chairman Alan Greenspan. “This use of derivatives leads to improved economic performance,” they wrote, insisting, “The capital markets have also acted to reduce the volatility of the economy. Recessions are less frequent and milder when they occur.”
Hubbard, who testified as an expert witness on behalf of two Bear Stearns hedge fund managers in an investment fraud case, is a frequent recipient of financial industry largess in the form of consulting and research fees. Last year, he was paid $785,000 for serving on three corporate boards and has been handsomely rewarded as a consultant to Freddie Mac, Bank of America, JP Morgan Chase and Goldman Sachs. He was paid $420,000 for supporting Fidelity in just one court case.
In the second presidential debate, Romney sought to distance himself from the Bush administration, ever so slightly. But it is Hubbard, a prime architect of the Bush strategy of unfettering Wall Street greed, to whom the Republican nominee turned to co-write “The Romney Program for Economic Recovery, Growth and Jobs.”
That plan not only extends the Bush tax cuts for the super-rich, but it would repeal the mild Dodd-Frank legislation holding Wall Street a bit more accountable. If Romney wins, it will be Bush reincarnated, and Hubbard’s ideology, a proven failure, will prevail.
Besides the threat of taking an economic step back with Mr. Hubbard, Doug Henwood gives another reason to support Obama.