Tuesday, September 16, 2008

It's the Economy Stupid

A funny thing happened while the country was fixated on the Sarah Palin phenomenon: Our largest financial institutions collapsed.
The chaos in the financial markets didn't come about by accident. It didn't happen because American workers are less productive or families less prudent with their household budgets. It didn't come about because we're a nation of whiners. It didn't come about because of greed on Wall Street. We've seen similar crises throughout history; I don't believe that human nature changes that sharply from year to year.
Instead the crisis with our largest financial institutions came about because, once again, we have let the financial wizards have their way while telling us not to worry about the exotic new products they've peddled to investors and borrowers. But this didn't happened because Main Street is inhabited by rubes. It happened because Washington enabled our financial giants to slip the bonds of regulation and economic reality so they could tell us that this time they really have discovered something so clever that we didn't need to worry about whether it would work or not.
If there is one theme that runs through the history of financial scandal and failure over the last 25 years, it's that we this time the wizards have devised something so clever and foolproof that we don't have to worry about outdated notions like matching assets and liabilities, maintaining reserves and oversight of the capital markets. That's what they said when S&Ls started speculating with federally insured deposits. That's what the Nobel Prize winners at Long-Term Capital Management said before they crashed and burned. That's what the smartest guys in the room from Enron said before going bankrupt. That's what the mortgage brokers said when selling adjustable rate mortgages that forced the federal government to take ownership of Freddie Mac and Fannie Mae. That's what they said before Bear Stearns, Lehman, Merrill Lynch and AIG were brought low.
Fool me once, shame on you. Fool me twice, shame on me. Fool me over and over again, there's something going on. What's going on is that our national government has allowed the same people to sell us the same line and stick us with cleaning up the mess they left behind. Only this time the mess is bigger than we've seen in a long time.
As the AP via the News Journal reports, Joe Biden understands:
"My lord, take a look at what – who got us in this hole, whose policies," Biden said. "This has been a Republican philosophy of letting Wall Street do what they want and the middle class be damned. It's about time we change it. If I sound like I'm angry, I am fighting mad for middle-class people who have been the scapegoat of this economy because of the policies of the McCains and the Bushes."
John McCain didn't seem to catch on until this morning, when his handlers told him he couldn't keep repeating the same line about the fundamentals of the economy being strong. Chuck Todd of MSNBC went back and checked how often he's said that this year:
By our count, he has used that phrase at least 16 times between Jan. 1 and June 5th of this year.
Unlike John McCain, Barack Obama understands that the government has a role in protecting us from the worst excesses of the financial markets:
John McCain cannot be trusted to reestablish proper oversight of our financial markets for one simple reason: he has shown time and again that he does not believe in it.
And so we are rudely awakened from the personality driven politics of the last several weeks to be reminded that, once again, it's the economy stupid.


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