Wednesday, September 24, 2008

Trying to Understand Another Wall Street Crisis.

Like many across the nation and in the blogosphere, I've been investing a fair amount of time trying to learn as much as I can about the crisis on Wall Street. The last time I had an economics course was approximately nineteen years ago, and to say this is all new to me is a bit of an understatement. Still, people who have had an extensive background in the field and in universities seem just as confused. I think it's important to figure out as much as I can about the issues facing our nation, even (or perhaps especially) if so many of the major players seem intent on obscuring the reality. So I'm going to continue to plunge in and try and gather as much information from as many diverse sources as possible.

One of the most problematic aspects of the way the Government has responded so far rests squarely with the Bush administration. Along with Henry Paulson (US Treasury Secretary) and Ben Bernanke (Chairman of the Federal Reserve), the president seems bound and determined to force Congress into acting without much reflection. This, of course, comes as no surprise for anyone following along closely over the last eight years. The strategy seems to entail systematically letting things get so out of hand that it's possible to scare the political opposition into agreeing to "emergency measures" that further the Bush agenda for America. I've always suspected that those in power want to bankrupt the federal government in order to stifle progressive action.

So a $700 billion bail-out proposal has been delivered to Congress, and action is demanded this week. Within this proposal is embedded a very simple message- profits are privatized and losses are socialized. Who is genuinely surprised by the audacity being displayed here? There is NO oversight in this plan. There is NO reward for the taxpaying public that is asked to shoulder the financial burden of a cabal of criminals who knew exactly what was at stake when they risked the public welfare for their own material gain. Paulson continues to threaten the US with a deep recession if his rewards package for inefficient and corrupt financial institutions is not approved without change. But most observers suggest that severe economic pain is going to happen regardless.

Exactly who is looking out for the public good? I'm happy to report that both parties are resisting Paulson's onerous package. Yet I wonder about the motivation. Times Online is reporting that McCain's advisers and some senior Republicans are telling him to exercise the "nuclear option". They believe that a "populist" stance might be a "game-changing" move that would win him the election. So they are saying he must oppose the bailout. But for at least a few days John McCain has taken the position that something must be done for the future of the economy. Fortunately he doesn't feel as desperate about his chances for the White House as those around him. He still maintains* that he is committed to a bipartisan resolution. We'll have to wait and see.

Meanwhile no one in Congress seems anxious to accept the Bush/Paulson/Bernanke plan. Everyone insists that there must be more oversight. I find it remarkable that the GOP is abandoning its long-held, unquestioning position as the official standard-bearer of deregulation and "unfettered free-markets". But despite the "bipartisan" opposition to the Bush Administration's "no-condition bail-out", there is a significant difference between what the Democrats and Republicans are seeking. Barack Obama** and the Democrats are trying to ensure that the American taxpayer gets some kind of chance for reward in exchange for assuming risky investments. That condition is noticeably absent in the current McCain plan.



* I think it might serve the reader to have McCain's words documented now, in case he does end up engaging in another flip-flop:

"Inaction is not an option. The American people are watching, history will be our judge and it will judge us harshly if we do not put our country first," McCain said in his first press availability in six weeks." Link.


** Obama also seems to be looking past the crisis in an effort not to continue repeating the same mistakes. "Obama said he would aim to prevent another crisis by pushing for measures to curb the influence of lobbyists, streamline and strengthen regulatory agencies, crack down on no-bid government contracts and make government more open and transparent." Link.

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4 Comments:

Anonymous Steve said...

"I find it remarkable that the GOP is abandoning its long-held, unquestioning position as the official standard-bearer of deregulation and "unfettered free-markets"."

Merge, this statment is in no way an absolute truth.

The Gramm-Leach-Bliley Act of 1999was one the most sweeping deregulation acts in history. It did away with the oversight of the Glass-Steagall Act of 1933. Bill Clinton signed that the GLB Act into law.

The Sarbanes-Oxley Act of 2002 instituted sweeping reforms and regulations after the large corporate bankrupcies of the early 2000s. George Bush signed that bill into law.

The current financial mess can't be attached to one party or the other. The fact of the matter is that they're all corrupt a-holes who answer to these companies, not to us. McCain has ties to Freddie and Fannie. So does Obama. Paulson used to work for Goldman Sachs and Chris Dodd has a free mortgage from Countywide.

When it comes to money, politicans stop being Democrats or Republicans. They just become greedy.

5:11 PM  
Blogger Merge Divide said...

Steve, I respect your opinions about politicians. I agree that greed perverts all political intentions and ideas eventually.

I do think that you'd have a hard time disputing the substance of my claim that the GOP has stood for deregulation since Ronald Reagan.

In my opinion, Clinton was the best Republican president since Eisenhower.

I'll also concede that both Obama and McCain have ties to Freddie/Fannie, but it's the matter of degree that is relevant here. Jim Johnson was on Obama's VP search committee. He no longer has ties to Obama. Franklin Raines is on the record as saying he was never an economic adviser for Obama.


Rick Davis runs the McCain campaign.

"After running McCain's failed 2000 presidential campaign,[2] Davis became the head of a group called the Homeownership Alliance, a Fannie Mae and Freddie Mac advocacy group. Its website said that the organization was dedicated to "exposing and defeating trends that would harm consumer access to the lowest-cost mortgage option."[3] He was head of the group for five years, being paid more than $30,000 per month. At the end of 2005, Fannie Mae and Freddie Mac decided that Homeownership Alliance had outlived its usefulness, and it was closed.[4]"

-from wiki.

We covered Gramm, and I won't belabor the point.

McCain currently employs at least seven former Freddie/Fannie lobbyists. Obama employs none.

McCain thinks Andrew Cuomo should be Treasury Secretary. Cuomo was the driving force behind deregulation of the housing and banking markets in the Clinton administration.

I know you disagree, but to me there is just no comparison between the two campaigns.

10:25 PM  
Anonymous Steve said...

"I'll also concede that both Obama and McCain have ties to Freddie/Fannie, but it's the matter of degree that is relevant here."

Only two other politicians in Washington have received more money from Freddie and Fannie than Barack Obama.

http://www.opensecrets.org/news/2008/07/top-senate-recipients-of-fanni.html

Isn't it worse to be on Freddie's/Fannie's payroll than to have someone who used to be on their payroll working for your campaign?

"McCain currently employs at least seven former Freddie/Fannie lobbyists. Obama employs none."

Do you have evidence to back this up?

Your fooling yourself if you think the blame for this financial crisis doesn't cross party lines equally.

11:56 AM  
Blogger Merge Divide said...

I saw the same data you did about campaign contributions. The fact is that politicians don't turn down this money- it doesn't matter what politician you are talking about.

Do you know who McCain's largest contributor is? Merrill Lynch. Do you think they'll get any "rescue" money? I wonder why Bank of America was so anxious to snap up a failed investment bank.

Taking a donation from someone does not mean you are "on their payroll". If that's true, then we should outlaw corporate contributions altogether. Is that what you're proposing? Because I might go along with that.

Getting money from a corporation is not the same as making their former lobbyists employees.

Do I have evidence that former lobbyists who have worked for Fannie/Freddie are working for Mccain:

Well, we've already mentioned (1) Rick Davis. That's well known.

What about (2) William Timmons?

"William Timmons, a lobbyist reportedly expected to lead McCain’s presidential transition team, has earned $260,000 this year lobbying for Freddie, Bloomberg News reported Tuesday."

SOURCE

HERE'S AN ARTICLE that documents by name some of the many lobbyists working for McCain.

Here's some highlights specific to this thread:

"(3)Aquiles Suarez, economic policy adviser. Suarez was last registered to lobby in mid-year 2007 for the National Association of Industrial and Office Properties, where he is a vice president for government affairs. He was a lobbyist for Fannie Mae from 2003 to 2006, where he was also the director for government and industry relations."

"Former Gov. (4)Don Sundquist (TN), state co-chairman for Tennessee. Sundquist is a lobbyist for Sundquist Anthony, a firm he co-founded. His clients have included Freddie Mac, The Hartford, and Waste Management."

"(5)Carlos Bonilla, economic policy adviser. Bonilla is a lobbyist and senior vice president for The Washington Group. His clients have included Freddie Mac, Time Warner, Motorola, and the National Cable & Telecommunications Association."


Oh... Here's more (according to the Senate Lobbying Database):

"According to the Senate Lobbying Database, the lobbying firm of (6)Charlie Black, one of McCain's top aides, made at least $820,000 working for Freddie Mac from 1999 to 2004. The McCain campaign's vice-chair (7)Wayne Berman and its congressional liaison (8)John Green made $1.14 million working on behalf of Fannie Mae for lobbying firm Ogilvy Government Relations. Green made an additional $180,000 from Freddie Mac. (9)Arther B. Culvahouse Jr., the VP vetter who helped John McCain select Sarah Palin, earned $80,000 from Fannie Mae in 2003 and 2004, while working for lobbying and law firm O'Melveny & Myers LLP. In addition, Politico reports that at least 20 McCain fundraisers have lobbied for Fannie Mae and Freddie Mac, pocketing at least $12.3 million over the last nine years."

SOURCE

Is that enough evidence for you yet?

As far as "crossing party lines", that's no the point. I'm comparing McCain to Obama.

We'll have to agree to disagree, I guess. I don't think that you'll find many on either side that wouldn't call the GOP the party of deregulation. But you can try if you want. Yes there have been Democrats who have pandered to those Republicans (especially under King Clinton's reign), but they certainly weren't taking the lead, and it wasn't official party doctrine.

4:48 PM  

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