Who do we Thank for This Mess ?
Â The last couple of days market action makes it easier to put some structure around the market that unfolds from here.Â We will discuss that in the morning. For the moment, we want to share this web postÂ we recieved today based on a NEWSWEEK article by Michael Hirsch. We couldn’t have said it better ourselves.
This mess is mostly a titanic failure of regulation. And the largest share of blame goes back to one man: Alan Greenspan. People mainly fault the former Fed chief, who once enjoyed a near-saintly reputation because of his reputed “feel” for market conditions, for ushering in an era of easy credit that accelerated the mortgage mania. But the much bigger problem was Greenspan’s Ayn Randian passion for regulatory minimalism. Under the Home Ownership and Equity Protection Act enacted by Congress in 1994, the Fed was given the authority to oversee mortgage loans. But Greenspan kept putting off writing any rules. As late as April 2005, when things were seriously beginning to go wrong, he was saying that subprime lending would work out for the common goodâ€”without government interference. “Lenders are now able to quite efficiently judge the risk posed by individual applicants,” he declared at the time. So much for his feel. New regs didn’t get put into place until this past Julyâ€”long after the crash had come, under Greenspan’s successor, Ben Bernanke. The new Fed chief’s “Regulation Z” finally created some common-sense rules, such as forbidding loans without sufficient documentation to show if a person has the ability to repay.
Greenspan has tried to defend himself repeatedly, though as bank after bank has failed he’s retreated to the shadows. But in a 2007 interview with CBS he admitted: “While I was aware a lot of these practices were going on, I had no notion of how significant they had become until very late.” This, from a man who once told me, in an interview, that he most enjoyed scanning economic reports for hours in his bathtub. Now, with Tuesday’s $85 billion bailout of AIG adding to the hundreds of billions the government has already put up to rescue Bear Stearns, Fannie Mae and Freddie Mac, this apostle of free-market absolutism has realized his worst nightmare. He has given us the largest government intervention into the markets since FDR. Heckuva job, Greenie.Reimagined as a pitchfork wielding populist reformer (while he tries to figure out how many houses he owns) John McCain is out on the stump this week railing about greed and avarice. But it was only yesterday he was saying this:
“Get ol’ Alan Greenspan — whether he’s alive or dead. And um if he’s dead, we’ll put dark glasses on him and prop him up like they did at Weekend at Bernie’s.”(Town Hall Meeting in Concord, NH 12/17/07)
And then we have Guru number 2, Phil “you’re all a bunch ‘o whiners” Gramm, the man McCain extols as an economic genius.
When Senator Phil Gramm and his wife Wendy danced, it was most often to Enron’s tune.
Mr. Gramm, a Texas Republican, is one of the top recipients of Enron largess in the Senate. And he is a demon for deregulation. In December 2000 Mr. Gramm was one of the ringleaders who engineered the stealthlike approval of a bill that exempted energy commodity trading from government regulation and public disclosure. It was a gift tied with a bright ribbon for Enron.
Wendy Gramm has been influential in her own right. She, too, is a demon for deregulation. She headed the presidential Task Force on Regulatory Relief in the Reagan administration. And she was chairwoman of the U.S. Commodity Futures Trading Commission from 1988 until 1993.
In her final days with the commission she helped push through a ruling that exempted many energy futures contracts from regulation, a move that had been sought by Enron. Five weeks later, after resigning from the commission, Wendy Gramm was appointed to Enron’s board of directors.
According to a report by Public Citizen, a watchdog group in Washington, ”Enron paid her between $915,000 and $1.85 million in salary, attendance fees, stock options and dividends from 1993 to 2001.”
As a board member, Ms. Gramm has served on Enron’s audit committee, but her eyesight wasn’t any better than that of the folks at Arthur Andersen. The one thing Enron did not pay big bucks for was vigilance.
There’s a lot more you can say about the Gramms and Enron, and not much of it good. But Phil and Wendy Gramm are just convenient symptoms of the problem that has contributed so mightily to the Enron debacle and other major scandals of our time, from the savings and loan disaster to the Firestone tires fiasco. That problem is the obsession with deregulation that has had such a hold on the Republican Party and corporate America.
Enron is so 2001, right? Something out of the past. Except it really isn’t. It’s yet another example of the GOP’s deregulation fetish of the past quarter century, which seems to result every, single time in a bunch of people losing their savings and the taxpayers being on the hook for billions. Sure, the big boys have to take some heat — why some of them are down to their last 100 million or so. But seeing as they’ve been swallowing a fire hose of money for the past seven years, I think they’ll pull pull through. The rest of us have to stay up nights wondering what the hell the next few years are going to bring us.
And John McCain has been out there selling this crap the whole time, vacationing with Keating, being best buds with Gramm and drooling over Alan Greenspan like a Hannah Montana fanboy. If anyone expects change from this guy they are living in a total dreamworld. He’s one of them.
If you like useless expensive wars, financial scandals, stock market crashes, foreclosures and economic instability as far as the eye can see, vote Republican. They’ve got everything you need.