Hands in the Cookie Jar
Posted on September 16, 2008
The Obama campaign has tried its darnedest to blame John McCain for the ailing economy. It’s McCain's free-market, laissez-fairer, philosophy that is to blame for this collapse, goes the argument.
A couple of things wrong with this construct, however.
First, McCain is hardly laissez-faire in his approach to regulation. In fact, if anything, McCain is a trust-buster, in the tradition of his hero, Teddy Roosevelt. He has taken on big industries, like tobacco, pharmaceuticals, and big oil.
McCain might have some friends who are lobbyists, but that doesn’t mean that he treats them any differently than anybody else. He goes after big corporations and industries, especially when he believes that they are not putting the country first.
Second, this crisis is not caused by the free-market. It is caused by government intrusion and government corruption.
The collapse of Freddie Mac and Fannie Mae is a perfect example of what happens when quasi-government entities are given a license to steal. Basically, these government-sponsored entities used their government guarantees to make risky and increasingly expensive bets with tax payer money. Those bets were made on the proposition that home prices would continually and forever increase at a rate of 10% or more a year.
These GSE’s had the backing of Congress, more specifically, the backing of Democrats in the Congress. Barack Obama was one of the top five collectors of Fannie Mae political contributions. Other top collectors included Chris Dodd, Barney Frank and Chuck Schumer, all prominent Democrats who sit on the committees of jurisdiction for the industry.
These Democrats bitterly resisted any reforms to Fannie and Freddie that would have saved the country from this crisis. So close were the Democrats to Fannie Mae that Jim Johnson, a former CEO of Fannie, was going to be the man vetting Obama’s Vice Presidential picks, until he became too controversial because of his connections to Countrywide.
Another Clinton Administration alum, Franklin Raines, went from his perch at OMB to actually become the CEO at Fannie Mae. On the Raines watch, there were so many financial irregularities, it is a minor miracle that he didn’t end up in jail. Perhaps that was because he had friends in high places.
It is hilarious how Democrats now condemn the Financial Services Modernization Act, signed into law by President Clinton. Clinton’s chief negotiator for this legislation was Robert Rubin, who later went to Wall Street and became a top executive at Citigroup. Rubin’s tenure at Citi was so successful, the company almost went bankrupt. But don’t worry. He made out ok.
Republicans tried their best to reform these GSE’s. Richard Baker heroically tried to bring reform legislation through the Banking Committee, only to have it die in a hail of campaign contributions and bitter resistance from the Democrats. The Bush Administration tried to do the same, but its efforts died a similar death.
And now, we are reaping what the government has sowed. A complete break-down in the capital markets, caused by a lethal combination of corruption, government incompetence, cronyism, and greed.
Government oversight of the financial markets is important, but who will oversee the overseers? When certain powerful Democratic members of the Congress are knee-deep in the cover-up, compromised by political contributions, incapable of seeing the hazards, who will stick up for the taxpayers?
The Obama campaign is using this crisis as an opportunity to attack the free-market. But the marketplace is not the culprit. Government corruption and interference are the real culprits. It was government corruption that paved the way for Fannie and Freddie. It was government corruption that gave these Government Sponsored Entities a license to steal. And it was government corruption that killed any efforts at real reform.
Don’t blame the market. Blame the government.