Wednesday, October 08, 2008

John McCain and the Financial Crisis

I watched the Senate hearings of the Lehman Brothers and AIG executives yesterday on C-Span.

Here's a few tidbits -
  • There are over 60 trillion dollars of paper bets aka credit default swaps floating around in the financial ether. Banks are afraid to loan money because no one knows what this stuff is worth.
  • These "insurance like" exotic financial instruments were absolutely unregulated and turned into a huge casino for people who like to bet - they have nothing to do with investing.
  • Prior to 2005, as this mess was unfolding, Congress tried to figure out a way to regulate these financial transactions even considering classifying them under existing gaming laws.
  • One thing that was particularly interesting to me was the Republican/conservative philosophy of non-interference in the "free" market resulted in cutbacks at the SEC to the point that one person at the SEC was responsible for overseeing what turned into a giant international casino - run primarily in the AIG Financial Products division in London.
  • There's a whole bunch of hogs at the trough but one particularly egregious example is the executive of the London branch of AIG Financial Products, who is currently receiving 1 million dollars a week as a consultant to what is now a government-owned business.
It's a mess.

So what does this have to do with John McCain?

John McCain is a fiscally irresponsible conservative who believes that keeping the government out of the free market is good policy. He's fiscally irresponsible, like George W. Bush and Ronald Reagan, because he a believes in the voodoo economic theory that you can promise to lower everyone's taxes (but really lower the taxes on the super rich) and not cut spending.

We have tax and spend liberals. We have no-tax and spend conservatives, who end up running up huge government deficits, and of course aren't conservative at all. You don't have to argue the theory - all you need to do is look at what this does in practice. Ronald Reagan left the country with the Savings and Loan bailout and huge deficits. George W. Bush will leave us over 10 trillion in debt and some yet to be determined number of taxpayer funded bailouts.

If you want to find a poster boy for complete deregulation it would be Phil Gramm - John McCain's economic mentor. You may recall Phil Gramm was John McCain's chief economic spokesman until he had to be kicked off the bus for calling American's whiners and saying we were in a mental recession.

It would be foolish to think John McCain somehow had a conversion of his policy positions just because he had to get Phil Gramm out of sight. We are talking about a core tenet of Republican's party - deregulation - keep the government out of the way of business.

The Columbia Journalism Review has a good article on John McCain's economic policy mentor - Phil Gramm. Here's a quote -

In the early evening of Friday, December 15, 2000, with Christmas break only hours away, the U.S. Senate rushed to pass an essential, 11,000-page government reauthorization bill. In what one legal textbook would later call ‘a stunning departure from normal legislative practice,’ the Senate tacked on a complex, 262-page amendment at the urging of Texas Sen. Phil Gramm.

There was little debate on the floor. According to the Congressional Record, Gramm promised that the amendment—also known as the Commodity Futures Modernization Act—along with other landmark legislation he had authored, would usher in a new era for the U.S. financial services industry.

And did it ever.


Speaking of markets Intrade Prediction Markets has Barack leading McCain 76 to 24 this morning - so that market wasn't too impressed with the debate and the recent attempts by some to move the discourse into the gutter.

I don't think this election is over by a long shot - a lot can happen in the next 27 days. It's imperative that every young person, every new voter, every voter of any age - show up at the polls on November 4th for this referendum on the country's future.