Former Republican Senator Phil Gramm on Friday blamed monetary policy and politicized mortgage lending - not deregulation - for the current market crisis.

Speaking before an audience at the American Enterprise Institute, Gramm, now a vice chairman of UBS Investment Bank, said regulators had the "massive power to intervene" in the crisis, but chose not to budge.

Gramm is the chief architect behind the Gramm-Leach-Bliley Act and the Commodity Futures Modernization Act - two bills that some policy and lawmakers say deregulated the financial sector and paved the way for the crisis. The Gramm-Leach-Bliley bill repealed the Glass-Steagall Act to allow for the merger of commercial and investment banks. The Commodity Futures Modernization Act prevented federal regulators from overseeing swap products.

Gramm defended those two bills Friday, and said the Gramm-Leach-Bliley Act did not deregulate the industry.

"It's interesting that when the charge was made, it was repeated, but whenever you asked somebody why do you think that's the case, no one ever had the foggiest idea why," he said.

"President (Bill) Clinton had a passionate defense of the bill," he added.

-By Sarah N. Lynch, Dow Jones Newswires; 202-862-6634; sarah.lynch@dowjones.com

Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary. You can use this link on the day this article is published and the following day.