Wednesday, September 17, 2008

The Crash of 2008: Wall St Melt Down

Well this past week has been an avalanche of shock for Wall St, Main St, and pretty much all around the world.

Monday news of Lehman Brothers going bankrupt, then Merrill Lynch being sold off to Bank of America, and then today's news of the Fed's loan to keep AIG afloat cost Dow Jones another 450 points. This week we've seen the steepest drop since 9/11, about $700 billion dollars in investments disappeared in one day.

What's interesting is the change in tune of McCain, who before was a champion of deregulation, yet is now on a mission to clean up Washington and Wall St. To take on the "good ole boys" and put an end to fat cats on Wall St.

I am in disbelief, and so should you. I don't know who McCain is fooling, and it's clear he's so desperate to be President he doesn't care that he looks like an idiot.

"Earlier this year, for example, when the economy began showing signs of trouble, McCain promised voters “specific proposals to address our economic challenges.” However, he also promised that “they will be based not on big-government intervention, and not on raising your taxes, not on increasing government regulation but unleashing the forces of the free market and capitalism.”

A decade ago McCain pushed unsuccessfully for a moratorium on all federal regulations. Asked about that by the Wall Street Journal this spring, McCain said, “I’m always for less regulation. But I am aware of the view that there is a need for government oversight.

I am fundamentally a deregulator,” he told the Wall Street Journal. “I’d like to see a lot of the unnecessary government regulations eliminated, not just a moratorium.”

That approach borrows a lot from the philosophy of McCain’s close friend and economics advisor, former Treasury Secretary Phil Gramm. As a U.S. senator, Gramm was widely considered the architect of our largely deregulated financial system that helped create this mess."

What was Gramm's contribution to all of this? He is responsible for introducing a nifty piece of legislation - the Gramm Leach Bliley Act which essentially cancelled the Glass-Steagall Act which was put in place by FDR during the Great Depression to separate commercial and investment banking.

Deregulation of Telecommunications, Energy, and Banking industry has been increasing since the Reagan administration. You would have thought we would have learned our lesson after the disaster of Enron, MCI, and World Com, but clearly the Republicans love affair with deregulation is never ending.

Although the Financial Services Modernization Act of 1999, also known as the Gramm-Leach-Bliley Act, was signed by Clinton, it was pushed through by a Republican Controlled Congress. This law effectively deleted the prohibition on commercial banks owning investment banks and vice versa. The problem is that the investment banks were not held to the same stringent capital requirements as set for normal banks. Oh and by the way, Gramm was the brilliant campaigner for McCain who said that we were "a nation of whiners", and that we were suffering only from a "mental recession".

This year's housing crisis with the bad subprime mortgage loans proved too much for the investment banks, and now we find ourselves in this nightmare of a situation.

Yet John McCain's answer is to put together a commission - like the 9/11 to figure out what went wrong!

If this isn't a wake up call for America, I don't know what is. McCain is clearly unable to take leadership and outline a plan for what needs to be done. Other than to spout off tough talk about knowing how to handle it.
In two new television ads Wednesday, McCain asserts that he is the right leader to keep Americans' savings safe.

"I'll meet this financial crisis head on," he says in one ad. "Reform Wall Street. New rules for fairness and honesty. I won't tolerate a system that puts you and your family at risk. Your savings, your jobs — I'll keep them safe."

Really Mr. McCain? If you know what to do, please stop bragging, and tell Bush what to do then!

Obama's speech at a rally in Golden, Colorado provides a stark contrast in leadership and vision.

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