Sigh. It was funny, and sad, to see the clip of John McCain on Rachel Maddow's show last night saying that he essentially didn't see the subprime mess coming. Or the economy faltering. It reminded me of all the statements of the past eight years of other things Republicans in our government "didn't see":
- Nobody ever anticipated terrorists flying planes into buildings (even though it was a major plot point in a Tom Clancy novel).
- Nobody ever thought US troops would be greeted as anything but "liberators" in Iraq (even though history proves that getting involved in a land war in Asia...not so much.)
- Nobody ever thought the levees would breach in New Orleans (despite the fact the government had been warned time and again that is exactly what would happen if a big enough storm hit).
So here we are again, with yet another Republican basically lacking the foresight to see an obvious problem before it hit. And yet again, this Republican has no guts to admit that he helped cause the problem in the first place.
The most ridiculous aspect of McCain's pivot on the campaign trail is to somehow rebrand his "maverick" image into the image of a "regulator," like some Old West Regulator striding into D.C. to clean house. It's a farce, primarily because McCain has never been in favor of regulation. In fact, the primary reason we are in this mess is deregulation. And a lot of us saw it coming awhile ago.
Take Robert Kuttner. He wrote nearly a year ago that this mess was coming, and we had better take heed:
The sub-prime mess, the huge risks taken by hedge funds, and the conflicts of interest that led to Enron and kindred scandals, are all the consequences of serial bouts of financial deregulation. Since the 1970s, in the name of free-market efficiency, Congress and presidents of both parties repealed key protections put in place by the New Deal. But the main effect has been to engineer windfall profits for financial insiders, replace real productive innovation with financial engineering, shift wealth from families to corporations, and put the entire American economy at ever greater risk.
Bingo. Deregulation caused this mess. And the biggest piece of deregulation in the financial industry came in 1999. The Gramm-Leach-Bliley Act, or GLBA for short.
GLBA essentially eliminated the barriers between commercial and investment banks to consolidate and merge, so that you could have hedge funds, regular banking, lenders, brokerage services and insurance companies all under one roof. One stop shopping! GLBA repealed key parts of the Glass-Steagall Act, enacted in 1933 in response to the Great Depression to enact stricter controls, and yes, regulation over the banking industry where speculation had run amok. Indeed, without Glass-Steagall, regular folks who currently are keeping their money in failed banks would be out of luck totally, because Glass-Steagal created the FDIC to have government ensure their deposits. (Never mind that FDIC is running of out money right now...I'm sure some more deregulation would help that.)
You see, Senator McCain, a lot of us could see this coming because everything that went out with deregulation in the past 10 years obviated the need for common sense and created irrational exuberance in the economy. Kuttner again:
Thanks to deregulation, these several realms are interconnected. Inflated assets in real estate, the bond market, hedge funds, and private equity feed on each other. And the most important bubble is the stock market itself. The ratio of stock prices to corporate earnings is not quite as high as it was in 1929 or 2000, but it is still very high by historic standards. Takeover deals executed by hedge funds and private equity companies use borrowed money to pay a premium for companies they take over. That inflates the stock price. They hope that by selling off pieces of the company after cutting costs (mainly wages), they can make a quick bundle. But this whole business strategy is based on stock prices continuing to rise. If the cycle goes into reverse, and the deal makers have no buyers at their desired price, or if their financiers stop advancing them credit, the game stops and the stock market sags. Today, the game has certainly slowed: According to research firm Dealogic, the value of takeover deals fell from $695 billion in April and $579 billion in July to $222 billion in August.
Each of these bubbles grew thanks to a very lax regulatory environment combined with very low interest rates. Like every such bubble, our current ones could continue only as long as investors had confidence that prices would go still higher -- just as they did in 1929.
And that sub prime mess? Yeah, we saw that coming too:
For decades, real-estate prices have appreciated faster than incomes. This could not go on forever, because a house is worth only what some buyer can afford to pay for it. Lately, housing prices got an extra nudge from artificially cheap mortgages extended to people who didn't really qualify for credit. Mortgage companies could make these sketchy loans because some other speculator was willing to take the loans off their books, and because they expected housing prices to keep rising, adding a cushion of equity. Thanks to deregulation, the entire game operated largely beyond the purview of bank examiners.
Now, those of us who DID see it used simple logic to follow it through. The housing bubble was artificial because of a vast array of credit products that allowed folks to exceed their actual ability to pay mortgages and borrow more than they really should have to get bigger and better homes. Thus, the price of homes went up, up, UP! And we were all encouraged to buy, buy, BUY! Flip, flip, FLIP!
Then crash, boom, the bubble bursts. And because we deregulated large portions of the financial sector, we were helpless to stop it.
Now, I realize that having Phil Gramm, the guy who AUTHORED the GLBA on your campaign staff might cloud your judgment on this whole thing, Sen. McCain. And of course you did vote FOR the GLBA (Joe Biden, by the way, DIDN'T.)
But to be out there now, trying to claim the mantle of regulation? PLEASE. That dog won't hunt. You've got a history here, after all:
Deregulating the Savings and Loan industry. Deregulating the banking industry, including mortgages. Deregulating the energy industry (Enron, anyone)?
Of course, when you are trying to win the Presidency and everything to everyone, it's easy to see why you were against regulation before you were for it:
Here is a look at McCain’s back-and-forth on regulation during the last 24 hours:- Deregulation: McCain issued a statement Monday morning saying that "we cannot tolerate a system that handicaps our markets and our banks." - Regulation: McCain’s campaign then put out an ad calling for "tougher rules on Wall Street." - Deregulation: This morning, on NBC’s Today Show, McCain said, "Of course, I don’t like excessive and unnecessary government regulation." - Regulation: Then, on CBS’s The Early Show, McCain said, "Do I believe in excess government regulation? Yes." - Both: On CNBC’s Squawk Box, McCain said, "We don’t want to burden average citizens with over-regulation and government bureaucracy...And I’m proud to be a Teddy Roosevelt Republican, who said, ‘unfettered capitalism leads to corruption,’ and we’ve got to fix this."
No worries, Sen. McCain. You didn't see it coming because those of us on this side of the aisle have a fundemental difference in philosophy when it comes to our government. While you thought it was OK to let the financial sector run amok without any controls, we were over thinking that a total lack of regulation would lead to an economic crisis. And that crisis is here.
We knew it. Obama knew it. You didn't. Plain and simple.
And no amount of "straight talk" is going to be able to cover that up.