Gramm’s Fairy Tales

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Where Phil Gramm is concerned, it helps to know a few things about the art of the insult. For one, Brooklyn's got nothing on Austin.

“Number one, he's smarter than you. Number two, he's meaner than a junkyard dog.” Former Texas Representative Marvin Leath said that–and he's a friend.

“Al D'Amato without the niceness,” is how syndicated radio host Jim Hightower puts it.

“Of anybody you want to ask me about, he's the person I have the least respect for,” says Molly Beth Malcolm, chair of the Texas Democratic Party. “He's vicious.”

But he's not just mean, say the Texans who've dealt with him. He's also stubborn and wrathful–and willing to go to any lengths to crush his adversaries.

New Yorkers are about to get to know the ugly side of this faux-folksy former economics professor much better. As the new chair of the Senate Banking Committee, Gramm is getting ready to launch a full-frontal attack on the Community Reinvestment Act, a law that has pushed banks to invest as much as a trillion dollars over the last two decades in poor neighborhoods.

His crusade started last winter, when the Senate tacked anti-CRA provisions onto this year's version of its “financial modernization” bill, which aims to break down the regulatory barriers that prevent banks, insurance companies and commercial corporations from merging.

But the current threats to CRA have just been a dress rehearsal. Gramm plans to hold further hearings on the law later in the year, and from what the Texans report, it probably won't be pretty. When Gramm picks an enemy, they say, he threatens, maligns, blusters and misrepresents. And that's exactly what he's begun to do with the Community Reinvestment Act.

Yes, the bankers and finance bigwigs also want to see CRA destroyed, and they've given Gramm plenty of money to make sure he looks after them–$2 million last year. But banks' top priority is seeing the financial modernization bill passed. They have a lot on the line: big banks want to merge with insurance companies; small banks are eager to close a loophole in thrift regulations that allows corporations like Archer Daniels Midland to get into the banking business. With President Bill Clinton threatening to veto any version of the banking bill that undercuts CRA, the bankers are soft-pedaling their anti-CRA rhetoric this year.

That hasn't stopped Gramm, who has been railing against CRA as an un-American abomination. “We now have banks being extorted and being forced to make cash payments which are little more than bribes,” he announced to the Senate last fall. “The Community Reinvestment Act has become a vehicle for fraud.” He has even compared himself and CRA to Abraham Lincoln on the eve of his campaign against slavery.

Under Al D'Amato, Gramm's predecessor, ideology was window dressing. When it came down to the wire, D'Amato would help his liberal enemies in order to boost his votes and stay in office.

With Gramm, CRA seems to be more than just politics. It has all the hallmarks of a personal crusade.


Banks resent the Community Reinvestment Act because it tells them to invest and lend in neighborhoods and to people they'd prefer to forget about. In New York, CRA loans and grants are behind everything from New York City Partnership townhouses to strip mall redevelopment in Central Brooklyn to micro-loans for small businesses. Even City Limits gets some CRA money–about 5 percent of its budget.

The law doesn't force banks to make bad loans, but in order to get a good “CRA rating” a bank must prove that it serves poor neighborhoods as well as rich ones. A bad rating makes it an expensive ordeal for a bank to get approved for reorganizations, mergers and expansions.

Often, it's easiest for a bank to work out an agreement with a community group that has already identified good lending candidates or worthy development projects that qualify for CRA credit. Sometimes community groups may also act as counselors or loan administrators, skimming management fees off the top (usually around 1 percent). Often, these are harmonious relationships, but they can become combative when groups play watchdog, badgering a bank into complying with the law.

Gramm has focused the anti-CRA provisions in the current banking bill on undoing those relationships. One of the measures would require banks to report the CRA-related agreements they make with nonprofits. Another would make it hard for community groups to lodge official complaints about banks that already have a good CRA rating.

This summer Gramm turned up the heat, deploying his staff to investigate agreements between banks and community groups and demand piles of documents from regulators. And he's begun taking swipes at CRA.

“Gramm's made an absurd series of attacks, and for none of them has he come up with hard evidence to support them,” says Center for the Study of Responsive Law banking specialist Jake Lewis, who spent 25 years working for the House Banking Committee. Worse, says Lewis, Senate Democrats let him get away with it. “His colleagues are liberals, a number of them with pretty good records, yet they pretend not to be hearing these attacks.”

Gramm has repeatedly insisted that he's not planning to destroy CRA. And in Gramm's banking crusade, it can be hard to predict exactly what he'll do. For reasons no one quite fathoms, he used procedural tactics to suddenly kill last year's painstakingly crafted financial modernization bill, after it had sailed through the Senate on a 93-0 vote. (A furious Majority Leader Trent Lott called Gramm's machinations a “spectacle very unbecoming of the Senate.”) Some speculated Gramm was bending to Texas special interests, but it may have been simple spite, designed to prevent then-banking committee chair D'Amato from taking credit for the law, which bankers have lusted after for 20 years.

Likewise, Gramm could insist that this year's banking bill include the anti-CRA provisions that virtually guarantee a presidential veto. But recently he's hinted that he might compromise, reserving his fight for his special CRA hearings. “I wouldn't be surprised if that was a precursor to additional legislative activity later,” says Deborah Goldberg, acting director of the neighborhood revitalization at the Center for Community Change, a Washington, D.C., policy group. “The bottom line is that this is not a man to be taken lightly. As long as he's chair of the Senate Banking Committee, he's a danger to the whole world of community reinvestment, and people ought to be prepared for the worst.”