Pro-Deregulation Schumer Scores Bush for Lack of Regulation

As Senator Schumer attempts to blame Wall Street's recent economic upheavals on a lack of regulation by the Bush administration, he may have some inconvenient facts to confront.

Until the current credit crisis, Mr. Schumer had been a leading voice for deregulation: He has championed the repeal of a Great Depression-era law that prohibited commercial banks from underwriting securities; he has written an opinion piece calling for the Sarbanes-Oxley Act to be "re-examined," and he has opposed a bill that sought to reduce taxpayer risk in the event of a housing market slowdown by requiring Freddie Mac and Fannie Mae to sell their entire investment portfolios of about $1.5 trillion worth of mortgage assets.

Mr. Schumer heads the Democratic Senatorial Campaign Committee, and with the presidential campaign closing amid unprecedented failures on Wall Street, his broadsides encompass not only President Bush's economic stewardship — he is also castigating the Republican candidate, Senator McCain, as a deregulator.

"Eight years of deregulatory zeal by the Bush administration, an attitude of 'The market can do no wrong,' have led us down a short path to economic recession," Mr. Schumer said from the Senate floor late last week. Later, he said Mr. McCain "has been a leading advocate for deregulation for a very long time."

"It is amazing that Chuck Schumer is criticizing John McCain considering that less than two years ago he wrote an op-ed saying there was too much regulation in Wall Street," a spokeswoman for the Republican National Committee, Blair Latoff, wrote in an e-mail message to The New York Sun.

A spokesman for Mr. Schumer did not respond yesterday to a request for comment.

Mr. Schumer's opposition to regulation is also beginning to come under scrutiny for the first time.

"He is responsible as one of the leading senators in the banking committee for much of the problems that we're facing today," a fellow at the American Enterprise Institute, Peter Wallison, a former general counsel to the Treasury Department under President Reagan, said of Mr. Schumer. "He failed to regulate where there was an opportunity to reduce the taxpayers' liability."

Mr. Wallison was referring to a bill before the Senate Committee on Banking, Housing, and Urban Affairs in 2005. At issue was a Republican-supported provision that would have required Fannie Mae and Freddie Mac to sell off the $1.5 trillion in mortgage assets that the companies were holding as investments. The bill would have "considerably altered" the business models of the two companies by transforming them from "very large investment funds" into "conduits" that only bought mortgages, packaged them into securities, and sold them on the market, according to a Congressional Research Service report on the bill.

The aim of the bill was to prevent what ended up happening this month, when taxpayers were made to bail out the two companies after the housing market turned and wiped out their huge investment portfolios.

The bill was opposed by Mr. Schumer and other committee Democrats on the grounds that it would make it more difficult for people to get mortgages. Mr. Schumer said at the time that all the bill would accomplish — other than shifting the risk from taxpayers to the private market — was to have "reduced the commitment to housing."

Mr. Schumer framed the debate not as one of regulation versus deregulation, but one of economic ideology: "We tend to believe there should be a little more government involvement," he said. "And the folks on the other side of the aisle, with every good intention, agree there should be a little less."

Republicans on the committee said the issue was one of regulating the risks Freddie and Fannie were permitted to take. Senator Dole spoke of addressing "the systemic risk their portfolios represent."

Mr. Schumer has, in one instance, taken his deregulatory stance to the Wall Street Journal. In a 2006 opinion piece co-authored with Mayor Bloomberg, Mr. Schumer called for improving "our corporate climate."

The piece spoke of reducing "frivolous lawsuits" and the financial costs caused by "corporate leaders focusing inordinate time on compliance minutiae" out of fear of "overzealous regulators." The two politicians warned that New York was in danger of losing its status as financial capital of the world to London.

Seven years before the opinion piece, Mr. Schumer also sounded the alarm that London, or even Frankfurt, Germany, or Shanghai, China, could emerge as the world's financial capital. The occasion for that warning, delivered from the floor of the Senate in 1999, was the passage of a bill he had championed: the overturning of the Depression-era Glass-Steagall Act that had forbidden commercial banks from acting as investment banks.

In a speech in March at Cooper Union in Manhattan, Senator Obama blamed the repeal of Glass-Steagall as part of a deregulation trend "that was more about facilitating mergers than creating an efficient regulatory framework."

Some economists have argued that the repeal may ultimately help investment banks survive the market upheavals.