Tuesday, September 16, 2008

What McCain should say on Fixing Financial System

“You know that there’s been tremendous turmoil in our financial markets and Wall St. And it is—people are frightened by these events. Our economy, I think still—the fundamentals of our economy are strong. But these are very, very difficult times.” - John Mccain, September 15, 2008

This is what McCain needs to say: Obama saw the Iraq problems as a political opportunity, blamed Bush and then proposed the wrong answer and made the wrong predictions. Now Obama sees the economic problems we face as a political opportunity. He again blames Bush and then proposes the wrong answers and makes the wrong predictions.

McCain Tried to introduce regulation over Fannie/Freddie back in 2006


The United States Senate

May 25, 2006 Section 16

McCain is qouted: "For years I have been concerned about the regulatory structure that governs Fannie Mae and Freddie Mac--known as Government-sponsored entities or GSEs--and the sheer magnitude of these companies and the role they play in the housing market. OFHEO's report this week does nothing to ease these concerns. In fact, the report does quite the contrary. OFHEO's report solidifies my view that the GSEs need to be reformed without delay.

I join as a cosponsor of the Federal Housing Enterprise Regulatory Reform Act of 2005, S. 190, to underscore my support for quick passage of GSE regulatory reform legislation. If Congress does not act, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system, and the economy as a whole."

This strikes me as a pretty big deal. Obama is ridiculing the idea of Mc regulating this mess, and in fact Mc saw the problem in 2006 (maybe earlier).

Meanwhile, O has 2 former CEO of Fannie/Freddie as economic advisors, and is a major recipient of campaign contributions.

What were the Democrats saying?

"These two entities — Fannie Mae and Freddie Mac — are not facing any kind of financial crisis,’’ said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. "The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing."

McCain needs to get back to COUNTRY FIRST and announce that he intends to put COUNTRY FIRST by having a commission look into this and report within the first 100 days in office. The goal should not be new and more regulations, the goal should be reform and fixing what we have. The fact is that markets go 'too far' sometimes, and often when they do an underlying government incitement is behind it.

If McCain goes for REFORM of Government oversight and not mere 'more, more, more' Govt regulation, we might be better off.

Yes, there was a social contract broken. When fannie mae gives ex-Clinton appointees like Gorelick $50 million and dispenses money to Democrats in Congress and the end result is lack of fannie mae oversight *AND* the taxpayers are stuck with the bill - that is a good case for reform. Remember: Obama brought Fannie Mae ex-CEO Johnson to be his VP vetter. Johnson and the other 'insiders' have been at the Fannie Mae trough.

A commission is a GREAT idea. Why? Because it stops the usual Congressional practice of passing bad laws right away or doing a quick fix ('hey, lets write a check to everyone').

If the Democrats have their way, the guilty parties will be on the commission and will end up indicted the innocent and shooting the wounded. Instead, I suggest some people outside it all. Romney maybe. Or Maybe Mayor Bloomberg of NY. Or Lawrence Lindsay, former Fed member. Someone not part of the mess but who wont be cowed or awed by the financial wizards and who knows enough about the business so they can cut through the cr8p and get to the heart of the problems. There will never be a risk free market and to try to create one may be a cure worse than the disease, otoh, systemic risks should be mitigated.


Jerri Lynn Ward said...

What McCain needs to say is that we are seeing the perils of easy credit and the culmination of 70 years of teaching keynesian "economics" and both need to stop. It is appalling that politicians who have bought into the centralized management of money, thereby creating the conditions and incentives for high risk behavior, now demonize the markets without looking at the evils of government intervention. This is like Hoover calling the markets evil while instituting policies which made the situation worse.

Furthermore, Paulson is using the Constitution to blow his nose as he interferes with the bankruptcy courts and stomps all over the separation of powers provisions. In fact it's worse than that. The people taking these actions are not even elected. If anyone thinks all this will help, they are mistaken. The problem will be compounded and more people will be roped into and hurt by the inevitable market corrections.

Government intervention and manipulation skews and causes underestimation of risks--which is exactly what happened here. By demonizing those in the markets, McCain is ignoring the mote in the government's eye and focusing on specks.

Anonymous said...

Honestly, the statement "you cant there from here" that Vermont Yankees use comes to mind. While I dont disagree with some of your points, the fact is that the crisis will not be solved, nor will we get back on track, by ending 'centralized management of money'. We cant get there (total privatized money system) from here, any more than we could just abolish the EPA, FBI or DOE.

The panic of 1906, induced by the San Fran earthquake was ended when one private man JP Morgan stepped in. Its quite possible that the whole credit system could collapse if there is no private lender of last resort to stabilize the system.
The current Fed-based system has since 1913 been that last resort - the ONE TIME THE FED IS NEEDED is times like now. In 1930, the Fed refused to help Bank of New York from collapsing - the rest, as they say, is history.

Also, Paulson is trying his best to step lightly. That's why he did NOT save Lehman and the Bear Stearns was a private takeover but with Fed backing.

The Federal Reserve has ONE ESSENTIAL ROLE: Keep the money supply and credit system stable and orderly. If they can do that, then we might still have bankruptcies, bull and bear markets, and credit cycles, but we should not have credit market meltdowns and financial system shutdowns. When Panics Happen, the Fed needs to make sure the adjustments are made in an orderly manner and keep the systemic risk to a minimum.

... "Government intervention and manipulation skews and causes underestimation of risks" - TRUE, but much of that was for example in Govt CRA rules, Govt non-oversight of Fannie Mae.

McCain will not deliver laissez faire nor deregulation, but I think he could at least get us to clean up the mis-regulation that is going on.

Also, your point speaks to the 'moral hazard' issue. Every bailout makes the next bailout more likely. We 'solve' that by locking down credit rules and bringing these credit derivatives to the light of day.

Jerri Lynn Ward said...

I disagree that the Panic of 1907 was induced by the earthquake, though I learned what you wrote when majoring in economics at Texas A&M. The textbooks were written by keynesians and other variations of fabian socialists. I do not agree with what I was taught then.

By the time of the Panic of 1907, currency legislation had already been passed such as the Gold Standard Act. Moreover, the financial sector was already heavily regulated. I believe that the panic was caused by the Treasury Department's inflationary policies the 2 years prior to the Panic. And, as government always does, after it screws something up through regulation and command and control economics, it calls for more power to do the same, just as it is doing now.

To me the basic problem is an age old one. Man, since Eden, has always wanted to be as a god. We think that we can avoid the consequences of the reality of this world which was created by the one, true God by defying economic truths through manipulation of markets. The Bible warns repeatedly against long term debt and inflation and gives the consequences of violating His law on that issue--enslavement.

The actions of the government in nationalizing AIG, Fannie Mae and Freddie Mac, etc., are further emptying the coffers (which, essentially contain only iou's anyway), destroying the assets of the people and indebting us and your children for generations.

Anonymous said...