Obama on the Financial Crisis
Mr. McCain's opponent, Senator Barack Obama, termed the situation on Wall Street "the most serious financial crisis since the Great Depression," blaming the upheaval on the policies employed during the last eight years of a Republican-controlled White House.[from the NYT]"I certainly don't fault Senator McCain for these problems, but I do fault the economic philosophy he subscribes to," Mr. Obama said in a statement. "It's a philosophy we've had for the last eight years - one that says we should give more and more to those with the most and hope that prosperity trickles down to everyone else."
He added: "This country can't afford another four years of this failed philosophy."
"The challenges facing our financial system today are more evidence that too many folks in Washington and on Wall Street weren't minding the store," Mr. Obama said. "Eight years of policies that have shredded consumer protections, loosened oversight and regulation, and encouraged outsized bonuses to CEOs while ignoring middle-class Americans have brought us to the most serious financial crisis since the Great Depression."
Personalize it! John McCain's economic adviser, Phil Gramm, Mr. Deregulation-and-Stop-Your-Whining, can certainly be faulted. If he, John McCain, and George W. Bush had had their way, private Social Security accounts would have shriveled overnight. McCain said it was a "disgrace" that the young subsidize the retirement of their elders. (Hat tip to Harold Pollack on this.)
One of the principal roots of the present financial crisis that began with the collapse of Enron, is this piece of legislation:
Gramm-Leach-Bliley Financial Services Modernization Act, Pub. L. No. 106-102, 113 Stat. 1338
John McCain voted Aye.
Joe Biden voted Nay.
see here
Phil Gramm sponsored the bill with no co-sponsors. Gramm is McCain's prinicpal economic advisor. His wife was a member of the Enron board and chairman of the Audit commttee.
McCain is CERTAINLY RESPONSIBLE for the greatest financial disaster in American history. The last shoe has not fallen.
September 15, 2008 12:47 PM | Reply | Permalink
Oh, anybody feel like dumping their Soc Sec account into the lap of Lehman Bros, now? Oh yeah, that's right--they filed for chapter 11 protection. Hmm, how about Washington Mutual? Bear Stearns? Merrill Lynch? Hmmm, how about Morgan Stanley? One investor at a time(will be taken to the cleaners).
September 15, 2008 12:51 PM | Reply | Permalink
Obama should take a page from the Republican playbook and use 'fear' the way they use it. But Obama should use fear about the Economy. Nothing good is happening and every day sems to bring more bad news. Obama should use fear to swift boat the Republican party and McCain/Palin.
One subject Obama could use is what has happened to the people's 401Ks and IRAs over the last 8 years....where they are and where they could /should be.
How's that deregulation working out for you Binky?
September 15, 2008 1:56 PM | Reply | Permalink
If I were them, I would be using a contrast and compare strategy. If employed without exageration it could be pretty ruthless.
"They promised to make you safe."
"Instead they gave you endless war--and recent reports reveal that no progress had been made after 7 years in securing our most vulnerable critical national infrastructure."
"They promised you prosperity. They said they had all the economic answers."
"Instead your job went to India. They forclosed on your modest house. And for a while you counted on being picked up by the railroad tracks by a guy in a pickup who offered day labor--but with the collapse of Fannie and Freddie, there is no more day labor...no more houses are being built."
"They promised to restore honor and integrity."
"Instead, you have lobbiests and congressmen indicted left and right, including the man who endorsed Sarah Palin, Senator Stevens."
"They promised you clean water."
"Instead, the coral reef system is dying and there are no more tuna in the mediterranean."
"The good news is that, and Republicans should take credit for it, is that with Global Warming and warmer waters, there is an explosion in jellifish(including the box jelly) which the enterprising Japanese have shown you can turn into ice cream. Also, even though fish stocks may be down, there is an exposion in the squid population, so we will have all the Calimari you can eat. A diet of Jellifish and Calimari--brought to you courtesy of Republican Policies."
September 15, 2008 2:11 PM | Reply | Permalink
Obama needs to find a picture of McCain, Bush, Cheney, Gramm, and DeLay together.
Oh hell, just create one.
September 15, 2008 2:32 PM | Reply | Permalink
Sometimes Obama makes me shake my head in disbelief. "I certainly don't fault Senator McCain for these problems..."? Why not? Sure all republicans are to blame with their culture of cronyism and corruption, but he, McCain, deserves his share of the blame, along with his economic guru Phil Gramm, for what is happening. And now the American taxpayers will be picking up the tab for, and bailing out, McCain's buddies who created this mess. I can't for the life of me understand why Obama wouldn't specifically hammer McCain over the head with this issue...
September 15, 2008 3:05 PM | Reply | Permalink
Agreed. Obama is too gentlemanly, to a fault. It's almost like that guy who apologized to Cheney for letting his face get in the way of Cheney's buckshot. I fault McCain for these problems. I fault him for his voting record, and for his speeches, for his cronies, for what he has devoted his energy into. He helped to bring us the S&L debacle, and he helped to bring this meltdown, as well.
September 15, 2008 3:27 PM | Reply | Permalink
Definitely agreed on the 'too gentlemanly' aspect of his campaigning. With his statement that McCain isn't specifically to blame he let McCain off the hook and gives McCain an opportunity to say 'my opponent realizes that I am not to blame and therefore I can be trusted to fix things'. I am at a loss why Obama remove the blame from McCain like he did and potentially allow McCain to take that position.
But I do want to comment on your earlier comments on social security...yeah the same people who brought us this financial mess wants to let these Wall Street crooks get their paws on our social security money. I guess that would be one way for the republicans to kill another New Deal era program...by letting Wall Street CEO's and shareholders bleed it dry.
September 15, 2008 4:10 PM | Reply | Permalink
The wall street weasels see all that money sitting in Soc Sec and they cannot stand it. They MUST get their hands on it. The public has no memory, institutional or otherwise, but after 1929 and the farm foreclosures that followed the dustbowl, the level of indigency in this country was overwhelming. Many people had all their saving in the stock market, and lost everything. Bernard Baruch famously remarked that he knew it was time to get out when the newsboy was trying to give him hot stock tips. He took a year off and went around the world. He could afford it. Many old people who had never known poverty or hunger went on the bum, with no thought of how they would survive. When Social Security was created it was intended to be a rock solid safety net--not much but enough to keep an old man or an old women from starving to death in an alley wrapping themselves with old newspapers. Safety has always been the foundation of Social Security. It isn't an investment. It isn't a savings account. It's a safety net. No matter what they weasels tell you--keep it safe. Don't let them get their paws on it-- or it will be gone, forever.
September 15, 2008 4:49 PM | Reply | Permalink
It must drive them up the wall thinking about all that money that could be theirs instead of ours. In their minds it is very wasteful not to allow them access to it. Fortunately the people said 'no' when Bush tried to let financial markets gain access to it. And fortunately probably fewer Americans will be willing to take the gamble any time in the near, or distant, future with what is going on now.
Sure the American people have short memories and are poorly schooled in history also. But they have been fed lies that there will never be a repeat of '29 again. But, alas, many of the laws passed to ensure that have been repealed in the name of deregulation...and Americans have been programmed to believe that putting their money is a safe bet because over time everybody makes money there. Which is of course a lie on a couple of levels. First, in the markets there'll always be losers to go along with the winners and, second, there is no such thing as a safe bet.
September 16, 2008 12:07 AM | Reply | Permalink
Libertine said:
"Sometimes Obama makes me shake my head in disbelief. "I certainly don't fault Senator McCain for these problems..."
I couldn't agree more. It seems that Democrats, whether its Obama or Biden or any other Dem feel the need to kiss McCain's ass before they get critical.
What's that old saying? "He shot himself in the foot".
September 15, 2008 4:53 PM | Reply | Permalink
I hear/read stuff like that John and shake my head while muttering, enough already. Why even treat McCain like an honorable man when his campaign has showed he is anything but...
September 16, 2008 12:15 AM | Reply | Permalink
Is Obama too gentlemanly, or is this just the strategy for today: one hammer (hard-hitting ads, Biden's pit-bull attack) is brought out to slam McPal about their lies and dwindling honor. While Obama slams them in a more presidential/diplomatic way by keeping the attack on a non-personal level. In the public's mind, they get hit with the emotional punch from the so-called "negative" (but accurate) ads, and Obama drives home the attack in a more statesman-like manner without appearing negative.
September 15, 2008 11:40 PM | Reply | Permalink
Great, I'm glad someone is!!! I want to see more of attacking McCain, the politician, for his record and positions.
Why does Obama seem to feel he needs to praise him, or in this case, excuse him, for those positions though? No need for Obama to have to attack, but no reason to praise or excuse what McCain has helped wrought either.
September 16, 2008 12:12 AM | Reply | Permalink
It's amazing to see how mainstream media is incapable of educating and informing the people that there is reason to be alarmed. We are in one of the worst national disasters of our times: historic deficit of unprecedented proportion, irrational financial dependence on a yet-to-prove worthy ally (China), recession, financial failures, severe decline of the middle class, increasing numbers of once more financially stable lower classes now "circling the drain" into absolute poverty. If we possessed educated journalists knowledgeable (and, of course, unbiased) about microeconomics, history of social policy in this country, political science, international relations, we might see relevant and intelligent articles and headlines. We might see a voter populace who is knowledgeable and can question their party's platform and demand appropriate policies that respond to reality.
I remember a young journalist in my classes at UCLA who worked full-time and took classes on political science/economics so she could more insightfully write for the New York Times. Our professor was an acclaimed expert on Middle East relations who questioned many US policies at the time- one that desperately needed questions.
For those of us in the trenches of the cities of this nation, we are observing the social breakdown of our cities in the form of increasing domestic violence, struggling families who lack health care coverage, more illnesses (that have the potential of a becoming public health crises), both communicable and chronic which are being seen more and more in schools and public places, increasing violent crime, foreclosures and loss of the homestead - which are dislocating families already on the precipice of survival. In many cities like Stamford, Connecticut and Oakland, California, low income family housing are being displaced to make room for high end condos and corporate apartments, forcing families to search for housing in more crime ridden urban areas nearby. "For whom the bell tolls..." It tolls for all of us in America for we will all (no matter the degree of our comfort today), in time, be affected by the unraveling of our society from the affects of George W. Bush et al and the ilk of one of his most faithful cheerleaders, John McCain.
An intelligent press would focus on the one person whose policies will set a new trajectory and help lead us out of a darkness that has descended upon our country over these past 45 months: Barack Obama. In the many decades I have lived in this country, my birthplace, I have not seen the likes of Obama since the Eisenhower and Kennedy eras. This man is a good man and has the vision that can help our nation survive into the next four years. May God above bring light to this poor, tired, confused nation.
September 15, 2008 3:41 PM | Reply | Permalink
I have another post hereabout another Gramm bill, the Commodity Futures Modernization Act and its direct relation to the Freddie/Fannie takeover. I'm trying to get Michael Greenberger, former Director of the Division of Trading and Markets at the Commodity Futures Trading Commission, who fought this bill, to comment on how much he thinks Gramm's bill contributed to the Freddie/Fannie takeover.
This stuff is so hard to explain to the public, though. But it needs to be done.
I think we need an ad like this:
In 2000, McCain's top economic advisor, Phil Gramm, helped a company named Enron push for laws which deregulated California's energy market. The results were rolling blackouts affecting 97,000 customers; the collapse of Enron; and the conviction of Enron CEO Ken Lay.
In 2000, Phil Gramm also pushed through laws through congress that allowed deregulation of the banking industry, allowing looser guidelines for accounting and mortgages and allowing banks to speculate on their own mortgages--thus doubling their losses when the housing bubble collapsed. This directly resulted in the economic crisis we face today and was the reason of the government takeover of Freddie and Fannie Mae.
Do you really think these people can "fix" our economy?
September 15, 2008 3:45 PM | Reply | Permalink
This is the Gramm-Leach-Bliley act I referenced earlier in this thread. Biden voted against it, McCain voted for it. You are right that it is the Mother of all the excesses we have suffered in the past eight years, the CA energy ripoff, the collapse of Enron, the subprime mortgage debacle, the leveraged securities meltdown, the Oil futures market, and the grain futures markets. The Gramm-Leach-Bliley permited futures markets to be structured 'in the dark'--and this is why so many investors, such as the Firemens' Retirement Fund of Finland, bought bonds whose underlying leveraged securities value could not be determined because the value of the mortgaged properties were not know to them. Many, many, many people bought a Pig in a Poke. The cure to all of these problem is sunshine and ventilation. No more hidden markets. No more secrets. Full disclosure. Not only in financial markets, but with respect to everything Congress does. Who lobbied for a bill, for a provision, for an earmark. Who lobbied against it. Who donated how much to whom? All the relations between politicians ad PAC's and all the other issue advocates organizations--bring it all up front. Make it public. That is the kind of change that I want to see.
September 15, 2008 4:58 PM | Reply | Permalink
Oops. My blockquote above was meant to contain the rest of the post.
I think the Commodity Futures Modernization Act is different from the Gramm-Leach-Bliley act, but it is another pig-in-the-poke deal. At least, according to the interview linked in that other thread, the Commodity Futures Modernization Act failed to pass the senate but was then snuck into the appropriations bill as congress was leaving for Christmas break in Dec 2000. Gramm-Leach-Bliley passed in May 1999.
I agree with everyone above about Obama's excessive politeness. But rather than complaining about the commercials and statements Obama should be making, we should be pushing some 527s to take the more aggressive stance and encouraging journalists--especially TV journalists--to talk about Gramm's role in these disasters. What about a letter signed by prominent economists citing Gramm's role in the current crisis and in crises past?
September 15, 2008 6:03 PM | Reply | Permalink
Besides the fact that Obama seems unwilling to slam McCain/Gramm himself, I think it would be more legitimate, too, if the critique of Gramm came from an outside group than if it came from Obama's campaign. Are there any appropriate 527's or advocacy groups that could take this on?
September 15, 2008 6:58 PM | Reply | Permalink
I can't help but think that some of Obama's unwillingness to castigate G-L-B is because Clinton signed it into law.
Mind you, it appears that Gramm slipped in the CMFA at the last minute, in a much larger bill. It may well be that the Clinton administration didn't have time to carefully review it - and it was long past the time in which Clinton could have used a line-item veto.
So, there's a downside to blasting McCain/Gramm on G-L-B(I must confess, I tend to snicker at the ordering of that acronym, given its sponsors), as it does have Clinton's imprimatur.
But, it's a good stepping stone for highlighting the desire to get things done, in a bipartisan fashion, rather than doing nothing.
And it allows him to point out that sometimes, in the act of compromising, one has to accept things one doesn't like in pursuit of the greater good, and hope to take steps later to change them.
The energy bill that had Cheney's prints all over it is another such compromise, where you get some things you believe are desperately needed, but have to also swallow something nasty in the process.
September 16, 2008 8:03 AM | Reply | Permalink
Isn't one of the requirements of leadership, and management for that matter, that you can elevate peoples understanding, that you can raise their consciousness, that you can persuade them to follow your lead, because you can lay out a coherent set of justifications for the direction you suggest we go. A leader is a pathfinder. You only need a pathfinder when you're lost in the wilderness. Every ship must stop and pickup a Pilot before it is permitted to proceed into a harbor. Why is that?
September 15, 2008 8:47 PM | Reply | Permalink
http://www.motherjones.com/news/feature/2008/07/foreclosure-phil.html
Years before Phil Gramm was a McCain campaign adviser and a lobbyist for a Swiss bank at the center of the housing credit crisis, he pulled a sly maneuver in the Senate that helped create today's subprime meltdown.
By David Corn
July/August 2008 Issue
Who's to blame for the biggest financial catastrophe of our time? There are plenty of culprits, but one candidate for lead perp is former Sen. Phil Gramm. Eight years ago, as part of a decades-long anti-regulatory crusade, Gramm pulled a sly legislative maneuver that greased the way to the multibillion-dollar subprime meltdown.
September 15, 2008 3:57 PM | Reply | Permalink
Yeah, that's the bill I was talking about.
September 15, 2008 6:06 PM | Reply | Permalink
It's not only Gramm who's to blame (though I certainly don't discount him).
This American Life did a segment last weekend on SEC chairman Christopher Cox and how he's turned down offers from Congress—Republicans in Congress—to regulate the financial industry. Cox's choice for big bad? Naked short selling.
From This American Life:
http://www.thisamericanlife.org/Radio_Episode.aspx?sched=1260However, as trivial as naked short selling is deemed among the financial cogniscienti, Cox's way of dealing with it actually did more harm than good. And all this while he was ignoring Freddie Mac and Fannie Mae.
From Gary Weiss:
... the study ... was conducted by a professor at a business school in Lausanne, Switzerland. Thomas Kirchner comments that the study "shows that by some measures, it even had a detrimental effect on the market of the very stocks that the SEC sought to protect."
No surprise here, because the SEC issued the order (as it admits) not because of actual naked shorting, but as a "preventive" measure. In other words, because it had nothing better to do, and was seeking to divert attention from its lousy performance in handling the credit crunch.
http://garyweiss.blogspot.com/2008/08/secs-naked-shorting-order-hurt-bank.html
From Zac Bissonnette at BloggingStocks
He said that failures to deliver in the 19 financial stocks affected "were reduced substantially" and added that "It was a very effective order from that standpoint." Fair enough. But then he dropped this bomb shell: "We expected and intended to have no impact whatsoever on the direction of prices. That's not the purpose of regulations."
http://www.bloggingstocks.com/2008/08/20/sec-chairman-shatters-naked-shortselling-conspiracy-theories/
September 15, 2008 4:51 PM | Reply | Permalink
I hope you can tell what's a blockquote and what isn't. I promise you that's not how I formatted my comment.
September 15, 2008 4:53 PM | Reply | Permalink
The DOW dropped 504 points today, but PHEW, fortunately for us the fundamentals of our economy are strong.
September 15, 2008 6:19 PM | Reply | Permalink
Dr Phil Gramm has instructed me to command you to stop your whining. Be patient while the ink dries on the new bills Treasury just printed...
September 15, 2008 8:43 PM | Reply | Permalink
As adept as Bush is at screwing up everything, even he couldn't do it all alone. McCain and all the GOPers need to be portrayed as being as responsible as Bush for this economy and this war. And just maybe someone will find a videotape of Palin at prayer-- speaking in tongues!
September 15, 2008 9:57 PM | Reply | Permalink
This unsophisticated whining about the actions of Phil Gramm, who slipped the CFMA in as a rider to an appropriations bill which President Clinton signed shortly before leaving office, is embarrassingly naive.
The real culprit, if any, is David X. Li, who employing the Gaussian copula model argued in a paper published in the Journal of Fixed Income (March 2000) that it was possible to establish a correlation of defaults by employing that function to "specify the joint distribution of survival times after marginal distributions of survival times are derived from market information."
Wall Street's computerized "black box" investment formulas were based on his theory. So, if you're out to blame anyone, blame Mr. Li and those who adopted his construction.
September 16, 2008 8:48 AM | Reply | Permalink
Weel, that is certainly true if you want to blame the whole cascading chain of business failures on the growth of CDOs, beginning in 2001. That is certainly a major factor. But in real terms, it was people unable to service their mortgages that began the process of bank forclosures on properties--something which could have been avoided with a refinance for a fixed rate mortgage at a longer term--say 40 years, or 50 years--all of which would have led to less loss that the collapse of the market, which increased real estate inventory, which depressed the demand for real estate. A security back by a house that cannot be sold is worthless. So, sure, the leveraged framework built on top of real estate was absurdly fragile. But brokers wrote loans that were destined to reset to risky borrowers. And, although that risk was supposed to be mitigated by the tranches, the collapse of the market for real estate made it impossible to determine the value of the collateral. And the leverage unravelled.
September 16, 2008 11:54 AM | Reply | Permalink
Brokers wouldn't have written the loans if Wall Street wasn't able to sell them. And Wall Street wouldn't have been able to sell them unless it could show buyers what their risk was.
The entire system* depended upon "risk analysis" and it was the quants who produced the numbers.
* Includes the intermediaries, too, which depended upon these "black box" outputs to determine and/or justify permissible gearing ratios.
September 16, 2008 12:19 PM | Reply | Permalink
Yes but brokers write the loans to standards set by their supervisors and someone was convinced that they could sell anything--and apparently that was true. Someone also knew that risky loans were being written which would certainly default when the rates reset.
I have heard testimony from people who (probably should not be out by themselves) thought they were getting a 30-year fixed mortgage and asked repeatedly for verification that this was the case, because the documentation did not say so--and they had never bought a home before and never imagined they could be defrauded. But they were.
They were astonished when their rates reset. And now a few Brokers agents will go to jail. And Baloon mortgages and sub-prime loans may work fine for someone expecting an increase in income in the future, or who intends to roll over the property before the rates reset--but Allen Greenspan, in 2003, was recommening to home buyers that they take advantage of Baloon mortgages.
Of course the rate sets were inevitable. And with all the Liars loans, and the collapse of the real estate market, the cascade of forclosures was inevitable. All of the leverage against the mortgage backed securities probably would have held up just fine, had all the loans been written for fixed rates against dilligently verified documentation. But they weren't--and their failures are what rendered the properties worthless, and brought down the cat's cradle of over leveraged creative finance.
That's the point I am trying to make. The market blew up. And the market was the clay foundation of the steel pyramid that was built up high into the sky.
September 16, 2008 12:33 PM | Reply | Permalink