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Monday, July 14, 2014 |  Madison, WI: 74.0° F  Fair
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COVER STORY

'Not free of blame': Paul Ryan's role in the meltdown


Credit:New America Foundation
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Rep. Paul Ryan has consistently backed deregulatory policies favored by the financial industry. These policies set the stage for the sub-prime housing debacle, which in turn toppled major Wall Street banks that had invested heavily in "derivatives" that were supposed to divide up the risk of the sub-prime mortgages.

In 1999, Ryan voted for the repeal of Depression-era legislation meant to minimize the risk undertaken by commercial banks. He backed the Gramm-Leach-Bliley Act that allowed commercial banks to engage in much riskier investment banking and insurance.

In 2000, Ryan voted for the Commodity Futures Trading Modernization Act, which blocked federal regulation of derivatives. A once-obscure stock-market maneuver, derivatives became a popular means of speculating on the future financial health of specific assets.

Many investors steered clear, with billionaire Warren Buffett bluntly describing derivatives as "financial weapons of mass destruction." But major banks on Wall Street bought billions of derivatives on sub-prime housing mortgages. Ryan, in November 2007, also opposed imposing new regulations on the then-burgeoning sub-prime mortgage industry.

When the bubble in housing prices popped, the banks were stuck with vast losses. The Wall Street crash soon followed, along with the economic catastrophe that hit Ryan's district hard.

To counter damage caused by their role in keeping the sub-prime mortgage industry and Wall Street deregulated, Ryan and other Budget Committee Republicans issued a Jan. 8 analysis called "Roots of the Crisis," almost entirely devoted to obscure government policies with no specific mention of the Wall Street bankers who lost hundreds of billions while rewarding themselves with $18.4 billion in bonuses.

The harshest criticism by Ryan and his GOP colleagues on the Budget Committee was contained in a single, remarkably tepid phrase: "The financial crisis that unfolded this year had numerous causes, and Wall Street is not free of blame."

Why the kid-gloves treatment of the financial industry? In an analysis called "Sold Out: How Wall Street and Washington Betrayed America," the watchdog groups Essential Information and Consumer Education Foundation note that Wall Street has over the last decade "showered Washington with over $1.7 billion in what are prettily described as 'campaign contributions' and...another $3.4 billion on lobbyists whose job it was to press for deregulation."

In return, the banks were able to "get rid of many of the reforms enacted after the Great Depression and to operate, for most of the last 10 years, without any effective rules or constraints whatsoever."

According to the Center for Responsive Politics, Ryan's largest set of contributions from 1998 to 2008 came from the financial, real estate and insurance sector, clocking in at $1,555,321. While Ryan claimed that the bank bailout "sucks," he nonetheless voted for it.

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