GOP: Deregulate Wall Street, Or The Roman Empire Will Fall

An architect of the financial crisis offers a strange history lesson.
Giorgio Cosulich via Getty Images

WASHINGTON -- With Democrats already within the very walls of the U.S. Capitol and financial reform taking hold in the provinces, congressional Republicans issued a stark warning this week: Repeal Dodd-Frank, or the Roman Empire will fall.

Former Sen. Phil Gramm (R-Texas) returned to Washington on Tuesday to marshall the forces of conservatism against the barbarian regulatory swarm.

"To limit the abuse of rulers, the Romans started the revolutionary practice of writing down the law so citizens could go and read it," Gramm said at a hearing before the House Financial Services Committee. "Under Dodd-Frank today, the conditions of Roman law are no longer met in America. The rules are now whatever regulators say they are. This isn't the rule of law, this is the rule of government."

Gramm had been invited to testify by House Republicans as the top witness on the panel. He criticized America’s new "Soviet"-style oversight of big banks, which he said resulted in too much regulatory complexity, too much time spent planning for a potential big bank failure and too much attention to "abusive" practices targeting consumers. As Cato the Elder once proclaimed, "Elizabeth Warren delenda est!"*

All of this testimony, of course, glossed over Gramm's own personal history. At the turn of the millennium, Gramm was the chief congressional architect of two pieces of Wall Street deregulation that would ultimately form the legal foundation for the 2008 financial crisis.

He worked so closely with Citigroup CEO Sandy Weill in the drafting of 1999's Gramm-Leach-Bliley Act that Weill later joked in his memoir that the law should have been named "Weill-Gramm-Leach-Bliley." The law demolished the barrier between conventional lending and risky securities trading, retroactively legalizing a merger that Weill's bank had inked with Travelers, a massive insurance company. Citi would go on to buy up hedge funds and other risky operations. Within a decade, an unmanageable Citi behemoth needed a massive government bailout to avert its collapse.

Gramm's other great career landmark was a 2000 bill that banned regulators from overseeing credit default swaps, the ultimately toxic contracts that brought down AIG and fueled excess at Lehman Brothers, JPMorgan Chase, Goldman Sachs, Bank of America and Wells Fargo. Gramm's 2000 bill also blocked oversight of electronic energy trading by Enron, where Gramm's wife, Wendy, served on the board of directors. Wendy Gramm, who cashed out her Enron stock in 1998 before it cratered, would eventually be party to a multimillion-dollar Enron insider trading settlement.

So Gramm is a rather unsympathetic character to voice the House Republican deregulatory agenda. But he's also a terrible scholar of Roman law.

Publishing written laws was not a democratic act, let alone a transparent one, in a world where well over 90 percent of the public was illiterate. The greatest work of Roman law, the Corpus Juris Civilis, was assembled in the sixth century A.D. under Emperor Justinian. It proved massively influential in the late Roman Empire, across Enlightenment-era Europe and in the United States. But it was organized in large part to make sense of a morass of essentially contradictory edicts issued by emperors, governors, prefects and magistrates over the preceding centuries. In Rome, the law was indeed whatever its leaders said it was -- until they decided it was something else.

Roman law supported an empire where as much as 20 percent of the population was enslaved. Freedom was a luxury reserved for elites. Tax policies targeted lower-income populations, self-dealing was cloaked in high ideals and perpetual military adventures drained the treasury. Whatever the specifics of Roman law may have been at any given moment, at bottom it was unerringly dedicated to aiding and enriching politically influential aristocrats.

Gramm appreciates this principle as much as his Roman predecessors. At the hearing, he railed against "the one form of bigotry that is still allowed in the United States of America, and that's bigotry against the successful." Gramm said that former AT&T CEO Ed Whitacre had been unfairly criticized for receiving a $158.5 million pay package upon his retirement.

"He added billions of dollars in value," Gramm said. "He was exploited! It was an outrage!"

And a strong aristocracy can indeed be an engine of empire.

"We need to dominate the world of banking," Gramm said. "It's a source of power. It's ultimately a source of military power."

Historians continue to debate the reasons for Rome's decline. Some argue that faltering economic power sapped the empire's military strength. Others cite the migration of barbarian tribes fleeing Attila the Hun, or even the lead-filled paste that Roman elites enjoyed as a condiment. But you never know, maybe Gramm is right. Maybe it was the centralized clearing of interest rate swaps.

*Cato the Elder did not say this about Elizabeth Warren. He said it about something else. Don't email us.

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