McCain Blasts Wall Street Failure, Neglects To Mention His Adviser Helped Cause It

| Mon Sep. 15, 2008 1:44 PM EDT

As the news broke of the Lehman Brothers meltdown and the rest of the latest financial crisis, John McCain, speaking at a campaign rally in Florida on Monday, angrily declared,

We will never put America in this position again. We will clean up Wall Street. This is a failure.

And in a statement released by his campaign, McCain called for greater "transparency and accountability" on Wall Street.

If McCain wants to hold someone accountable for the failure in transparency and accountability that led to the current calamity, he should turn to his good friend and adviser, Phil Gramm.

As Mother Jones reported in June, eight years ago, Gramm, then a Republican senator chairing the Senate banking committee, slipped a 262-page bill into a gargantuan, must-pass spending measure. Gramm's legislation, written with the help of financial industry lobbyists, essentially removed newfangled financial products called swaps from any regulation. Credit default swaps are basically insurance policies that cover the losses on investments, and they have been at the heart of the subprime meltdown because they have enabled large financial institutions to turn risky loans into risky securities that could be packaged and sold to other institutions.

Lehman's collapse threatens the financial markets because of swaps. From Bloomberg:

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Rove Attacks the Fact-Checkers

| Mon Sep. 15, 2008 1:34 PM EDT

An integral part of the conservative noise machine is discrediting national newspapers and networks — if you can't trust the New York Times and NBC, you're increasingly reliant on Fox News and Rush Limbaugh for all of your news and analysis. But what to do when nonpartisan outlets devoted exclusively to refereeing the campaign in a fair and unbiased way start to call you on distortions and deceptions? Discredit them too, of course.

Despite Palin's Rhetoric, Alaska Still Pursuing "Bridge to Nowhere"

| Mon Sep. 15, 2008 1:26 PM EDT

Sarah Palin has repeatedly made the (false) claim that she "told Congress 'Thanks, but no thanks' on the bridge to nowhere." Actually, when Palin campaigned for governor in 2006, part of her platform included supporting the bridge, even though by then it had already become a controversial symbol of federal pork. She didn't change course on the bridge until September 2007, almost a year after she was elected, when it became clear that Congress would not allow the earmarked money to be spent on the original bridge project. But on Monday, ProPublica's Paul Kiel reported that the Palin administration is still pushing for a bridge between the city of Ketchikan, Alaska and its international airport on nearby Gravina island:

Gov. Palin's administration acknowledges that it is still pursuing a project that would link Ketchikan to its airport -- with the help of as much as $73 million in federal funds earmarked by Congress for the original project.
"What the media isn't reporting is that the project isn't dead," Roger Wetherell, spokesman for Alaska's Department of Transportation, said. In a process begun this past winter, the state's DOT is currently considering (PDF) a number of alternative solutions (five other possible bridges or three different ferry routes) to link Ketchikan and Gravina Island.

ProPublica has more, including an Alaska Department of Transportation map of all the "different" bridges the Palin administration is considering building.

One of the Worst-Timed Op-Eds Ever, By One of John McCain's Economic Advisers

| Mon Sep. 15, 2008 12:55 PM EDT

Both Kevin and I have noted the absurd Washington Post essay by Donald Luskin titled "A NATION OF EXAGGERATORS: Quit Doling Out That Bad-Economy Line." It was published on Sunday morning, 12 to 24 hours before news broke that the American economy is basically in shambles, making it one of the most poorly timed pieces of punditry ever.

But what Kevin and I both missed is that Luskin advises John McCain on the economy! He admits it halfway through the piece, saying, "Full disclosure: I'm an adviser to John McCain's campaign."

Get a load of the wisdom Luskin is providing McCain. This is from the piece:

Things today just aren't that bad. Sure, there are trouble spots in the economy, as the government takeover of mortgage giants Fannie Mae and Freddie Mac, and jitters about Wall Street firm Lehman Brothers, amply demonstrate. And unemployment figures are up a bit, too. None of this, however, is cause for depression -- or exaggerated Depression comparisons.

Luskin follows this with a number of arguments (bolstered by statistics, of course) that would cause anyone with a rudimentary grasp of the American economy to spit out their coffee. Like this one:

The Republican Mess

| Mon Sep. 15, 2008 12:50 PM EDT

THE REPUBLICAN MESS....Obama on the financial crisis:

I certainly don't fault Senator McCain for these problems, but I do fault the economic philosophy he subscribes to. It's a philosophy we've had for the last eight years....It's a philosophy that says even common-sense regulations are unnecessary and unwise, and one that says we should just stick our heads in the sand and ignore economic problems until they spiral into crises....This country can't afford another four years of this failed philosophy.

I dunno. Do Mr. and Mrs. Heartland really respond to complaints about failed "philosophies"? I continue to be a little puzzled by Obama's unwillingness to plainly brand this as a failure of the Republican Party. People may or may not understand nebulous philosophies, but they can pretty easily be convinced that DC Republicans are basically shills for Wall Street and the rich and should therefore get 100% of the blame for this mess. At least, they could be convinced if Obama just went ahead and said it. After all, if the tables were turned do you think McCain would be so chary about blaming it on Democrats? I don't think so either.

Proof That the Economy is in Bad Shape

| Mon Sep. 15, 2008 12:33 PM EDT

PROOF THAT THE ECONOMY IS IN BAD SHAPE....Like Matt Yglesias, I too don't understand why the Washington Post would publish a piece on the state of the economy by Donald Luskin. It's not just that Luskin is a hair-on-fire conservative idealogue. So is Charles Krauthammer, and despite the fact that I think the Post would be better off without him, I understand that Krauthammer carries a certain amount of intellectual heft and appeals to a certain crowd. The same really can't be said of Luskin, who routinely makes mistakes like not accounting for inflation or discarding data points for no reason except that it helps prove some theory or other he wants to peddle. It's sort of kindergarten hackishness compared to Krauthammer's grad school hackishness.

So here's my guess: the Post wanted to run a "balancing" piece in the Outlook section arguing that the economy was basically OK and Bush had done a good job running it. Apparently no one smarter or more intellectually honest than Luskin — which includes just about everyone — was willing to do it. Which should tell you something.

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McCain on Today's Economic Events: "The Fundamentals of Our Economy Are Strong"

| Mon Sep. 15, 2008 12:13 PM EDT

Via Steve Benen, John McCain's take on today's financial insanity:

Here's the text version of that quote:

Economic Meltdown Update

| Mon Sep. 15, 2008 2:22 AM EDT

ECONOMIC MELTDOWN UPDATE....Here in the U.S., we've now seen the collapse of Bear Stearns, IndyMac, Fannie Mae, Freddie Mac, and Lehman Brothers, as well as the more-or-less-collapse of Countrywide and Merrill Lynch. In addition, AIG and WaMu are teetering, and perhaps Morgan Stanley and Goldman Sachs too. Current conventional wisdom, speaking in that scarily even tone that airplane pilots assume when both their engines have flamed out, suggests that the U.S. financial system might melt down completely this week. Conversely, the cheery optimists think it might avoid it — for the next few days anyway. I'd guess the optimists are right, but it's not as if I'd be willing to put any money behind that bet.

But here's a question for one of the serious econ-bloggers out there: Have lots of big non-U.S. banks collapsed? There was Northern Rock, but anyone else? Are any European financial systems in danger of meltdown? Why not?

BofA Buys Merrill; Lehman Files for Bankruptcy; AIG, WaMu Teeter

| Mon Sep. 15, 2008 1:23 AM EDT


While you were sleeping, the landscape of the US financial system changed dramatically. CNBC is calling it, "The biggest shakeup in the history of the US financial system." The country is in a "once-in-a century" financial crisis, former Federal Reserve chairman Alan Greenspan said on ABC's "This Week" on Sunday. The New York Times reported late Sunday that Bank of America has reached a $44 billion deal to buy troubled investment firm Merrill Lynch. Another firm wasn't so lucky: Unable to find a buyer over the weekend, 158-year-old investment bank Lehman Brothers filed for bankruptcy Monday morning. Lehman's liquidation will mark the largest collapse of a Wall Street bank since Drexel Burnham Lambert folded in the wake of the junk bond scandal almost two decades ago.

The problems don't end there. "We will see other major financial firms fail," Greenspan said on "This Week." Giant insurance company American International Group (A.I.G.) asked the Federal Reserve for $40 billion, "without which the company may have only days to survive," according to the Times. Washington Mutual, too, may be in trouble, after its shares plummeted late last week and Moody's Investor Service downgraded the bank's debt to "junk" status. And in Europe, a Swiss newspaper reported that Swiss bank UBS will have to take another $5 billion in write-downs.

We'll see what happens over the course of the day on Monday, but A.I.G., at least, seems to be in serious trouble. Adam Bakhtiar, a CNBC analyst, called Sunday's events a "tidal wave of horrific news." James K. Galbraith, an economist and contributing writer for Mother Jones, wrote in an email that while he has "a pretty good record on attacking Wall Street," his "schadenfreude is very much under control at the moment":

The world will not be a better place with two free-standing investment banks—Goldman [Sachs] and Morgan [Stanley]—and a half-dozen major commercial banks, if that, running everything. Further, there is a risk that the unraveling will become disorderly and out of control from this point, as assets hit the market in fire sales and do not find takers. This will affect pension funds and greatly compound the collapse of the wealth position of the middle class.... The collapse of Wall Street will hit Main Street like Ike hit Houston.

So how do we get out of this crisis? Well, the prime mover of all of these problems is the collapse of the housing bubble in the United States. "There's no question that this is in the process of outstripping anything I've seen, and it still is not resolved and it still has a way to go," Greenspan said Sunday. "And indeed, it will continue to be a corrosive force until the price of homes in the United States stabilizes."

The collapse of Lehman and the broadening crisis will undoubtedly be topic "A" for the presidential campaigns this week. Barack Obama and John McCain want to lead this country. How do they plan to respond to Monday morning's news?

The Republican Brand

| Sun Sep. 14, 2008 9:29 PM EDT

THE REPUBLICAN BRAND....Barack Obama is spending an awful lot of time these days trying to associate John McCain with George Bush. And why not? McCain has pretty thoroughly embraced Bush's ideas and Bush's approval ratings are in the tank, so why shouldn't he?

But here's a thought. Why is it that Obama's ads don't try to play off the brand of the Republican Party instead? Claiming that McCain is just a shadow of Bush, whether it's true or not, is a tough sell. (All those years as a maverick, you know.) But claiming that McCain is a Republican is an easy sell. And the Republican brand is in the tank right now every bit as badly as George Bush's.

And yet, unless I'm mistaken, Obama's ads never mention "failed Republican policies" or suchlike. Why is that? Is there some legal hangup? Is it because he's trying to be post-partisan? Is he doing it and I just haven't noticed (always a possibility)? Or what?