Following the back-and-forth last week on Pat Toomey's history in derivatives trading, the DSCC pressed the issue again today by passing along a video of Toomey from the House of Representatives' floor in 1999 praising a bill that helped deregulate the banking industry. In particular, Toomey praises credit-default swaps, risky trades that helped fuel the economic collapse.
In the decade that followed the signing of the Gramm-Leach-Billey bill, the credit-default swap market exploded as a way for insurance companies to hedge risk against a default, often on a mortgage -- except that the investors who ended up holding the swaps after a few trades didn't have a way to foot the bill if the holding went under. When the mortgage market tanked, many swapholders didn't have the capital for a rescue, exacerbating the Wall Street mess. Warren Buffett called them "financial weapons of mass destruction."
In 1999, the freshman Toomey -- who served on the Banking committee that helped draft the bill -- took to the House floor for a two-minute speech in support of the bill that included kind words for the swaps.
"I am particularly pleased that this bill includes an important provision regarding certain derivative transactions, especially credit and equity swaps," Toomey said. "These somewhat obscure products are actually very important tools used by businesses, including financial service firms, to manage a variety of risks that they face. This bill reaffirms that swap contracts are legitimate bank products that can be executed and booked in banks and are adequately regulated by and will continue to be regulated by banking supervisors."
Toomey never traded the swaps himself, though he did trade other kinds of derivatives from 1984-1990 [corrected from '91, 5:32 p.m.] before he moved to Allentown to start a restaurant/bar chain with his brothers. Democrats are doing their best to make hay out of his Wall Street history, as big bankers have become the popular -- and easy -- boogeymen for the financial collapse.
Their ad, released last week, made the questionable claim that Toomey wrote the bill -- though he took credit for crafting it on his website and was on the committee, he was a back-bencher and not a co-sponsor -- and also focused on his derivatives trading. The Toomey campaign cried foul and said the DSCC was unfairly implying that Toomey dealt in credit-default swaps, which he never traded. The floor video, nonetheless, shows him advocating for them.
"Funny, despite the all the spin from his current Senate campaign, that looks like Pat Toomey in the video, carrying water for the Wall Street derivatives industry and working to loosen regulations on credit swaps," said DSCC spokesman Jared Leopold. "Now Pat Toomey's trying to run from his record, but it appears he's been caught on tape."
The Toomey camp claimed it was just a distraction after the initial ad was criticized for stretching the truth.
"Once again, Joe Sestak’s Washington cronies have been caught making false statements in their ads, and they’re just trying to cover themselves" by distributing the Toomey video, said Toomey spokeswoman Nachama Soloveichik. "There is only one candidate in this race who voted to spend $700 billion of taxpayer money bailing out Wall Street and that candidate is Joe Sestak."
The Toomey camp also makes another key point: the Gramm-Leach-Billey bill -- which repealed the Glass-Steagall Act, allowing banks to grow much larger -- was supported by a slew of Democrats and signed by President Bill Clinton in a big ceremony in which Clinton declared, "This is a day we can celebrate as an American day."
Among Democrats who voted for the bill: The current head of the DSCC, Sen. Bob Menendez, D-N.J., who was in the House at the time, and his predecessor, Sen. Chuck Schumer, D-N.Y., who said "This bill is vital for the future of our country."