Wednesday, September 17, 2008
With bad news from Goldman Sachs, Wamu and other financial sector entities, U.S. stocks plunged yet again today, with the Dow Jones Industrial Average closing at its lowest level since November 2005. Despite the $ 85 billion rescue of American International Group, the Dow sank almost 450 points to 10,610, a loss of over 4% of the index's value, after a similar plunge on Monday.
Gigantic banks, brokerages, insurance companies, Fannie Mae, and Freddie Mac failing....the US Treasury already wading in debt, bailing them out....the trade deficit spiraling up...foreclosures continuing at a historic rate...housing prices plummeting...construction starts at the lowest point in a generation....unemployment rising rapidly....daily announcements of job cuts by Fortune 1000 employers....
That frequent McCain refrain makes sense for someone who has followed the flimsy Republican line on the economy: kill regulations designed to protect the market and hope that corporate greed will keep itself in check. McCain is now scrambling to become the champion of regulation, but no one is going to buy that given his long record of deregulation. See Washington Post article on McCain's record advocating deregulation of business
An e-mail I received this afternoon asked: "Can he be any more out of touch?...[economic indicators] show that the fundamentals are crumbling."
Here's the analysis by America's Future:
* The trade deficit has worsened. The trade deficit has thrown about 400,000 Americans out of work every year for the last few years. Today, the Commerce Department reported that the trade deficit worsened in the second quarter of 2008, increasing by 4.3 percent—despite the decline in the value of the dollar. The second-quarter trade deficit of $183.1 billion means that every day the United States must raise more than $2 billion by borrowing or selling off assets. The trade deficit with China increased by 15 percent in the first half of 2008. More about the trade deficit...
* Housing construction starts continue to decline. Sinking housing starts means fewer construction jobs and a weakened economy. The Commerce Department reported today that both housing construction starts and permits for future construction fell by more than 6 percent in August. August was the worst month for housing construction since January 1991. Housing values—which have dropped 16 percent over the past 12 months—are continuing to decline. More about housing...
* The misery index has risen. Nine million Americans are now unemployed as prices for food, clothing, medical care, and education continue to rise. Yesterday, the Labor Department reported a new inflation rate of 5.4 percent for the 12 months ending in August. The unemployment rate for August was 6.1 percent. So the misery index (unemployment plus inflation) is now 11.5 percent—worse than any month since June 1991, more than 17 years ago. June 2008 was the first time the monthly misery index hit double digits since June 1993. More about the misery index...
Kick start the real economy, don’t just bail out the banks. We need a public investment initiative to get the economy moving, investing in renewable energy, rebuilding green, extending unemployment insurance, helping cities and states avoid deep cuts in health care, police and fire services, and more.
We need a long term agenda that will ensure that the profits and productivity of the next recovery are widely shared. Empower workers to organize. Forge a public social contract to replace the private one that corporations are shredding. Put the full force of the American government behind the goal of full employment. More about solutions...
After years of reading about billions of dollars lost to corporate fraud, incredible compensation for corporate managers of failing companies, and skyrocketing profits, I think we need a new paradigm. I'm not sure about the specifics of these "progressive" policies, but somehow we need to fundamentally reorient the American economy....or there won't be anything left.
McCain Embraces Regulation After Many Years of Opposition
By Michael D. Shear
Washington Post Staff Writer
Wednesday, September 17, 2008; A01
A decade ago, Sen. John McCain embraced legislation to broadly deregulate the banking and insurance industries, helping to sweep aside a thicket of rules established over decades in favor of a less restricted financial marketplace that proponents said would result in greater economic growth.
Now, as the Bush administration scrambles to prevent the collapse of the American International Group (AIG), the nation's largest insurance company, and stabilize a tumultuous Wall Street, the Republican presidential nominee is scrambling to recast himself as a champion of regulation to end "reckless conduct, corruption and unbridled greed" on Wall Street.
"Government has a clear responsibility to act in defense of the public interest, and that's exactly what I intend to do," a fiery McCain said at a rally in Tampa yesterday. "In my administration, we're going to hold people on Wall Street responsible. And we're going to enact and enforce reforms to make sure that these outrages never happen in the first place."
McCain hopes to tap into anger among voters who are looking for someone to blame for the economic meltdown that threatens their home values, bank accounts and 401(k) plans. But his past support of congressional deregulation efforts and his arguments against "government interference" in the free market by federal, state and local officials have given Sen. Barack Obama an opening to press the advantage Democrats traditionally have in times of economic trouble.
In 2002, McCain introduced a bill to deregulate the broadband Internet market, warning that "the potential for government interference with market forces is not limited to federal regulation." Three years earlier, McCain had joined with other Republicans to push through landmark legislation sponsored by then-Sen. Phil Gramm (Tex.), who is now an economic adviser to his campaign. The Gramm-Leach-Bliley Act aimed to make the country's financial institutions competitive by removing the Depression-era walls between banking, investment and insurance companies.
That bill allowed AIG to participate in the gold rush of a rapidly expanding global banking and investment market. But the legislation also helped pave the way for companies such as AIG and Lehman Brothers to become behemoths laden with bad loans and investments.
McCain now condemns the executives at those companies for pursuing the ambitions that the Gramm-Leach-Bliley Act made possible, saying that "in an endless quest for easy money, they dreamed up investment schemes that they themselves don't even understand."
He said the misconduct was aided by "casual oversight by regulatory agencies in Washington," where he said oversight is "scattered, unfocused and ineffective."
"They haven't been doing their job right," McCain said yesterday, "or else we wouldn't have these massive problems on Wall Street, and that's a fact. At their worst, they've been caught up in Washington turf wars instead of working together to protect investors and the public interest."
Yesterday, Obama seized on what he called McCain's "newfound support for regulation" and accused his rival of backing "a broken system in Washington that is breaking the American economy."
In a speech in Golden, Colo., Obama blamed the economic crisis on an "economic philosophy" that he said McCain and President Bush supported blindly.
"John McCain has spent decades in Washington supporting financial institutions instead of their customers," he told a crowd of about 2,100 at the Colorado School of Mines. "So let's be clear: What we've seen the last few days is nothing less than the final verdict on an economic philosophy that has completely failed."
Obama released a TV ad that mocks McCain for saying on Monday that "the fundamentals of our economy are strong" and asks: "How can John McCain fix our economy if he doesn't understand it's broken?"
He also poked fun at McCain for proposing a commission to examine the crisis, calling that "the oldest Washington stunt in the book."
"This isn't 9/11. We know how we got into this mess," Obama said. "What we need now is leadership that gets us out. I'll provide it, John McCain won't, and that's the choice for the American people in this election."
Obama reiterated his economic proposals: a stimulus plan and protections for struggling homeowners. Over the long term, he proposes enhancing regulations of the financial markets, including creating an advisory panel to regularly update the president.
McCain's proposed changes for the system were equally vague.
"There will be constant access to the books and accounts of our banks and other financial institutions," he said. "By law, it will reduce the debt and risk that any bank can take on. And above all, I promise reforms to prevent the kind of wild speculation that can put our markets at risk, and has already inflicted such enormous damage across our economy."
McCain offered his own TV ad promising to "reform Wall Street" and pass "new rules for fairness and honesty," adding: "I won't tolerate a system that puts you and your family at risk. Your savings, your jobs . . . I'll keep them safe," the ad says.
He did not describe how he would bring greater transparency to the process. His senior policy adviser, Douglas Holtz-Eakin, told reporters earlier in the day that there was no need for McCain to be specific right now.
"There's no magic solutions, and I don't think it's imperative at this moment to write down what the plan should be," he said. "The real issue here is a leadership issue.''
McCain stumbled Monday when the financial crisis peaked, first saying the "fundamentals" of the economy were strong. After being hammered by Obama and the Democrats -- "What economy is he talking about?" Obama asked -- he said that he knows the economy is in crisis, but that the basis of the American economy, the American worker, is strong.
By Tuesday, McCain had retooled the message further, and tried to wrap the financial meltdown into his campaign's greater message about changing "the way Washington does business."
McCain has not always opposed government regulation. He supported efforts to allow the Food and Drug Administration to regulate tobacco. And he pushed to strengthen the Sarbanes-Oxley Act requirements, which were put in place after the accounting scandals involving Enron and other major firms.
But he has usually reverted to the role of an unabashed deregulator. In 2007, he told a group of bloggers on a conference call that he regretted his vote on the Sarbanes-Oxley bill, which has been castigated by many executives as too heavy-handed.
In the 1990s, he backed an unsuccessful effort to create a moratorium on all new government regulation. And in 1996, he was one of only five senators to oppose a comprehensive telecommunications act, saying it did not go far enough in deregulating the industry.
As chairman of the Senate Commerce Committee for more than a decade, McCain did not have direct oversight of the financial sector. But he sat at the center of arguments between telephone, cable and satellite companies, almost always pressing for more competition.
"I'm always for less regulation," he told the Wall Street Journal in March. He added: "I'd like to see a lot of the unnecessary government regulations eliminated."