Remember Phil Gramm? He was John McCainâÄôs campaign chairman and top economic adviser until he referred to the United States as âÄúa nation of whiners.âÄù As the subprime mortgage crisis violently unravels it is becoming apparent that Gramm and his philosophy of free-market purism indeed deserve much of the blame for whining. In 1999, then Sen. Gramm authored and helped pass the Gramm-Leach-Bliley Act, which overturned many Depression-era financial industry regulations, sparking a merger frenzy and creating diversified banking behemoths. Economist Robert Ekelund and Mark Thornton had argued the act amounted to a âÄúmoral hazard that will make taxpayers pay dearly.âÄù ThatâÄôs an eerie assertion considering the FedâÄôs recent bailouts. On Dec. 15, 2000, Gramm snuck a little-read Commodity Futures Modernization Act into the broader spending bill. Written with the help of financial industry lobbyists, the act ensured no regulatory oversight on the emerging âÄúcredit-default swapsâÄù market. A credit-default swap is an exchange of the risk of mortgage default (in this case high-risk, sub-prime mortgages) from investment banks like Lehman Bros. and Fannie Mae to insurance companies like American Investment Group. The outcome? A $62 trillion market âÄî four times the U.S. stock market âÄî went unregulated: no one kept track of whether the banks and hedge funds actually held the assets necessary to cover potential losses. Theoretically, Gramm has an antidote for this toxic trade frenzy: the burst of the subprime mortgage bubble, and self-stabilization of the financial market over time. In practice, self-correction on such a grand scale could prove apocalyptic. In this unstable economic climate, the Federal Reserve is stepping in to bail out flailing mortgage giants Fannie Mae and Freddie Mac and global insurance colossus AIG at the American taxpayersâÄô expense. The necessity of smart regulatory practices has never been clearer.