The Bush administration, the Fed and Congress, meanwhile, continue to focus on the immediate crises, with little attention to the underlying reasons that the economy has gotten into this mess — a stagnation of incomes, an explosion of debt and a decidedly outdated, and limp, approach to government oversight. Remarkably, the presidential campaign has gotten less serious, while the economy’s problems have become more so.
Been fascinated to see, on the usual blogs I read, how little comment/analysis of the financial crisis there has been. In part because the writers don’t seem to really grasp economics the way they should (having something in common with McCain that way).
But this really goes to philosophical heart of governance. Republicans - and to a sad extent, Democrats - have in recent years insisted that the markets were capable of policing themselves. Becuase if they didn’t then they’d get in trouble! And now they are in trouble, and there is clearly a need for some non-limp regulatory oversight.
But conservatives in particular reject the notion of regulatory oversight on ideological grounds. John McCain has been less of an ideologue on this, but nevertheless he’s paid it more than mere lip service - and even helped push through the law that arguably enabled AIG’s spectacular rise and fall. (And note the name of the law - Gramm being Phil Gramm, economic advisor to John McCain).
But now, of course, McCain’s latched on to some fiery populist rhetoric about greed being bad, etc. Does he really believe this? Does John McCain now legitimately believe that additional oversight of financial markets is necessary? Do Republicans?
Actual conservatives have advocated letting AIG fail - and let the chips fall where they may - as the feds let Lehman Brothers fail. I’m on board with that logic, or would be if there had been a way to know for certain what the exact ramifications of an AIG failure would have been. Because, via David Kurtz over at TPM, we see a rather startling line buried in a WSJ report on the AIG takeover today:
In bailing out AIG, the Federal Reserve appeared to be motivated in part by worries that Wall Street’s financial crisis could begin to spill over into seemingly safe investments held by small investors, such as money-market funds that invest in AIG debt.
Indeed, on Tuesday the $62 billion Primary Fund from the Reserve, a New York money-market firm, said it “broke the buck” — that is, its net asset value fell below the $1-a-share level that funds like this must maintain. Breaking the buck is an extremely rare occurrence. The fund was pinched by investments in bonds issued by now collapsing Lehman Brothers.
Money-market funds are supposed to be among the safest investments available. No fund in the $3.6 trillion money-market industry has lost money since 1994, when Orange County, Calif., went bankrupt. A number of money-market funds own securities issued by AIG. The firm is also a big insurer of some money-market instruments.
The Masters of the Universe could not be permitted to take us all down.
But that, too, points to the need for what Barack Obama has called a “21st century regulatory framework.” Effective, streamlined regulation - but rules which nonetheless do constrain financial services, and perhaps other industries, from the excesses that too often seem to result from a lack of rules.
Can a candidate, and a party, which has made deregulation a central part of his/its persona, really abandon this ideological underpinning?
