Studio8 - Uniting the Arts

De-Regulation: McCain's Failure to Learn from History

Up until the recent financial meltdown ... so up until about 2 weeks ago, John McCain was a strong and very vocal advocate of de-regulation of the financial industry, while Barack Obama favored reasonable regulatory oversight to prevent corruption and unbridled greed. Over the past two weeks, McCain has "flip-flopped" (sound familiar) his regulatory position.

Without doubt, too much regulation is a bad thing and can suffocate and choke the life out of honest businesses. On the other hand, little to no regulation and enforcement only incubates corruption and greed. The "reasonable" approach is one landing somewhere in the middle.

This week, the Obama campaign released a 14 minute video outlining Senator McCain's involvement in the collapse of Lincoln Savings & Loan in the late 1980s. At the time, the scandal was called the "Keating 5" investigation because the head of Lincoln Charles Keating had lined the pockets of 5 U.S. Senators, including McCain, with large political contributions, vacations to his island beach houses, & free rides on his luxury corporate jet, among other favors. In exchange for his largess, Keating expected the Senators, including McCain, to champion de-regulation and to intervene on his behalf with Federal regulatory investigators if necessary, and they did. Senator John McCain did.

Here's a link to the Obama Campaign's McCain/Keating video:
http://www.youtube.com/watch?v=IDofbll86dY

CNN's "Truth Squad" investigation confirmed the accuracy of the video:
http://www.youtube.com/watch?v=VF1m5-XHvLU

Here's a link to a Los Angeles Times article which succinctly sums up the facts on McCain's improper behavior in the Keating matter:
http://www.latimes.com/news/opinion/la- ... 109.column

The bottom line is that McCain consistently voted against regulations that might have prevented the $124 billion Savings & Loan bailout of the late 80s/early 90s and personally intervened on behalf of Keating in the Lincoln S&L investigation to try to get the investigators to back off. The Senate ethics committee found that McCain's attempts to intervene for Keating showed "poor judgment." Keating was convicted of criminal fraud & all of Lincoln's customers lost their life savings. The same anti-regulation atmosphere championed by McCain and his colleagues which allowed Keating to swindle his customers also resulted in the failure of hundreds of other Savings & Loans, costing U.S. taxpayers $124 billion. Sound familiar?

Now, we turn to the present financial meltdown. The $700 billion Wall Street bail-out. McCain was still championing that the economy was sound and that there should be less Federal regulation over the financial industry up until the very day the financial markets began to unravel. You would think that he would have learned that regulatory oversight is actually necessary to prevent debacles such as the S&L meltdown. You would think his judgment these days would be better, wouldn't you? After all, McCain called the Keating 5 scandal & resutling investigation the worst thing that ever happened to him, Vietnam included.
(source: http://seattletimes.nwsource.com/html/p ... ing04.html).

You would think he might have learned his lesson. Those that do not learn from their mistakes are doomed to repeat them.

In her September 25, 2008, column for the Los Angeles Times, Rosa Brooks noted

ntil August, the lobbying firm owned by McCain campaign manager Rick Davis was paid $15,000 a month by Freddie Mac, one of the mortgage giants implicated in the current crisis (now taken over by the government and under investigation by the FBI). Apparently, Freddie Mac's plan was to gain influence with McCain's campaign in hopes that he would help shield it from pesky government regulations. And until very recently, Freddie Mac executives probably figured money paid to Davis' firm was money well spent. "I'm always in favor of less regulation," McCain told the Wall Street Journal in March.

Ironically, it's the McCain campaign that has been trying to tie Obama to Freddie Mac & Fannie Mae and the current DOJ investigations, claiming that Obama is getting economic advice from the former CEO of Fannie Mae, now at the heart of the DOJ's fraud investigation, a claim which the Washington Post's truth squad says is blatantly false:

http://voices.washingtonpost.com/factch ... ction.html

Obama’s top economic advisers are Jason Fuhrman and Alan Goolsbee, neither of whom have ties to Fannie or Freddie. On the other hand, members of the McCain staff have previously worked for or lobbied on behalf of Fannie Mae and Freddie Mac: e.g., Rick Davis, Campaign Manager; Charlie Black, Senior Adviser; Carlos Bonilla, Economic Adviser; Arthur Culvahouse, Head of VP Search Committee; Doug Davenport, Regional Campaign Manager; Julienna Glover-Weiss, Steering Comittee; as well as a lot of his other senior and junior staff.

Admittedly, Obama did receive large campaign contributions from Freddie and Fannie, but at all times he was in favor of reasonable regulatory oversight, and taking his economic advice from people not tied to either organization. McCain, on the other hand, was receiving large contributions, and even huge monthly payments directly to his campaign manager, made with hopes he'd continue to champion de-regulation of the kind that might have prevented this mess.

The reality of the current financial meltdown is that the banks & mortgage companies started selling sub-prime mortgages & then bundled up those mortgages as investment packages & sold those securities to other banks & investment/brokerage firms together with "credit swaps" (which is sort of like insurance - ie if you buy these risky investments, we'll guarantee them if they don't pay off) - the only reason that they could sell such risky investment vehicles with swaps (instead of calling it what it really is - insurance, which is heavily regulated) was due to DE-REGULATION. Calling their "insurance" swaps instead of insurance allowed the seller to avoid having to actually have capital in reserve to cover these risky bets - and when the underlying mortgages in the packages defaulted, the swaps got called in to be paid - and there was no capital in reserve with which to pay them ... and that's when the selling companies went under - AIG, Lehman Brothers, etc. - they were all heavily involved in this multi-trillion $ market. Their behavior may actually be criminal, ergo the DOJ investigation, ... not to mention just plain stupid. Don't believe me? 60 Minutes just aired this explanation with the help of experts on their program last night.

Had it not been for de-regulation legislation, which removed the rules that could have prevented credit swaps without sufficient capital reserve, pushed through primarily by Republicans (Sen Phil Gramm, TX), with major backing from McCain, when Republicans controlled Congress, the country might not be in this current mess. Further, in 2000, for instance, Sen. McCain voted against federal regulation of the kind of financial derivative investments at the heart of today's crisis.

The bottom line is that the Republican's candidate McCain is blatantly anti-regulatory oversight ... the result of such a policy is financial meltdown ... both in the 80s/90s $124 billion Savings & Loan bail-out and the current $700 billion Wall Street bail-out package. McCain did not learn from his gravest mistake and continued to champion de-regulation up until the day of the current disaster. Obama wrote letters to Paulson & Bernanke warning of the impending crisis and need for regulatory oversight. To all of you reading this, when dealing with the financial industry, this point should be obvious and beyond dispute - if you don't watch the bastards, they'll line their greedy pockets.

Obama wants to watch the bastards ... McCain doesn't, ... or didn't.

My plummeting portfolio value this week tells me Obama has a better position on regulatory oversight and simply exercises better judgment. Doesn't yours?

Peace,
Beth

In an interview with journalist Bill Moyers which aired on PBS tonight, financial guru George Soros agreed that in order to resolve the current crisis the Federal Government needs to (1) buy up defaulting mortgages and lower those home-owner/mortgagee's payment by reducing interest on the loans and re-adjusting the principal to reflect the true value of the properties, and (2) restore capital reserves of banks unable to meet their credit obligations in exchange for a government ownership interest in the bank and a corresponding lowering of the value of shares held by those banks' shareholders; and which allows the government's shares to be bought out by private investors.

Some worry that such a move would result in socialism. Mr. Soros disagreed. He explained that in his opinion Capitalism will survive but in a different form. He said that the downfall of Marx's socialist models and the current financial marketeering models of governance are similar in that both resulted from an agent-principal problem, ... namely, that the agents looked out only for their interests and not for those of their principal. In the downfall of the socialist model, the leaders made decisions which benefited their own financial and personal interests that were not in the best interest of the public. In the downfall of the current financial marketeering model, the same is true, the agents handling the financial transactions at the heart of this collapse were only interested in the personal income they generated on each transaction rather than protecting the interests of the principal underlying each transaction.

He suggested further that the collapse of the financial marketeering model is not the end of capitalism, but that the engine which drives capitalism in the future will need to change. He explained that this is the end of the era of the over-spending over-consumption engine where growth and inflated values and credit markets were spurred on by Americans spending and consuming at rates far greater than the goods and services they were actually producing. He speculated that the next engine may be energy independence and investment in technology and infrastructure necessary to implement green energy sources so as to reduce fossil fuel consumption and provide every American & world citizen with the ability to become energy self-sufficient as a means of preparing to meet future threats to our survival, such as global warming or diminishing supplies of fossil fuels.