Yesterday (10/1/08), Factcheck.org issued a story debunking Moveon.org and McCain for finger pointing claims on our economic woes.
As Congress wrestled with a $700 billion rescue for Wall Street's financial crisis, partisans on both sides got busy – pointing fingers. MoveOn.org Political Action on Sept. 25 released a 60-second TV ad called "My Friends’ Mess," blaming Sen. John McCain and Republican allies who supported banking deregulation. The McCain-Palin campaign released its own 30-second TV spot Sept. 30, saying "Obama was notably silent" while Democrats blocked reforms leaving taxpayers "on the hook for billions." Both ads were to run nationally.
And both ads are far wide of the mark.
Then, claiming it's basically everybody's fault, they lay out a large list of factors that contributed to the meltdown. Yet somehow, nowhere in this article is there any mention of the Gramm-rammed Commodity Futures Modernization Act of 2000.
Update: Yes, I have written to the editors to ask and I am waiting for a response.)
UPDATE II: sc kitty points out that Factcheck.org is wrong in saying Biden voted for Gramm-Leach-Bliley - he did not. Actual record is here and here.
Is it me, or does it seem very strange that in trying to clarify the issue of blame and deregulation in this crisis that Factcheck.org would totally omit any mention of the Commodities Futures Modernization Act, since it is the law that allowed for credit default swaps to exist without any kind of oversight or regulation?
Maybe it's the fact that Democrats have really been pushing "deregulation" as the main problem with our economic system, despite the fact that when Gramm-Leach-Bliley was passed in 1999, it had broad bi-partisan support and Bill Clinton just came out and insisted this wasn't a mistake.
From Factcheck.org:
The bill in question is the Gramm-Leach-Bliley Act, which was passed in 1999 and repealed portions of the Glass-Steagall Act, a piece of legislation from the era of the Great Depression that imposed a number of regulations on financial institutions. It's true that Gramm authored the act, but what became law was a widely accepted bipartisan compromise. The measure passed the House 362 - 57, with 155 Democrats voting for the bill. The Senate passed the bill by a vote of 90 - 8. Among the Democrats voting for the bill: Obama's running mate, Joe Biden. The bill was signed into law by President Clinton, a Democrat. If this bill really had "stripped the safeguards that would have protected us," then both parties share the blame, not just "John McCain's friend."
The truth is, however, the Gramm-Leach-Bliley Act had little if anything to do with the current crisis. In fact, economists on both sides of the political spectrum have suggested that the act has probably made the crisis less severe than it might otherwise have been.
Last year the liberal writer Robert Kuttner, in a piece in The American Prospect, argued that "this old-fashioned panic is a child of deregulation." But even he didn't lay the blame primarily on Gramm-Leach-Bliley. Instead, he described "serial bouts of financial deregulation" going back to the 1970s. And he laid blame on policies of the Federal Reserve Board under Alan Greenspan, saying "the Fed has become the chief enabler of a dangerously speculative economy."
This 9/24 article from Business Week has been quoted all over the conservative web (often out of context), with such fantastic headlines as "Bill Clinton Defends Deregulation Against Barack's Attacks" (The Weekly Standard). Sort of makes me want to retch, actually.
Further proof that when it comes to this mess, it's not particularly "sound-bite friendly." So, do Democrats believe Gramm-Leach-Bliley was a bad thing or not? Because when I'm arguing with my parents, I need to know that Bill Clinton isn't going to shoot his maw off and contradict me on this stuff.
To be clear, Gramm-Leach-Bliley wasn't the only piece of legislation that created this unregulated tangle of issues. The way I understand it is, the Commodities Futures Modernization Act allowed for unregulated credit swaps - which are a critical component of this problem. I don't think the act actually DE-regulated anything, but it did prevent regulation and oversight of new financial products.
According to David Corn at Mother Jones:
The act, he (Phil Gramm) declared, would ensure that neither the sec nor the Commodity Futures Trading Commission (CFTC) got into the business of regulating newfangled financial products called swaps—and would thus "protect financial institutions from overregulation" and "position our financial services industries to be world leaders into the new century."
(CUT - ed: Then there's a fascinating paragraph about how this created the Enron loophole...)
But the Enron loophole was small potatoes compared to the devastation that unregulated swaps would unleash. Credit default swaps are essentially insurance policies covering the losses on securities in the event of a default. Financial institutions buy them to protect themselves if an investment they hold goes south. It's like bookies trading bets, with banks and hedge funds gambling on whether an investment (say, a pile of subprime mortgages bundled into a security) will succeed or fail. Because of the swap-related provisions of Gramm's bill—which were supported by Fed chairman Alan Greenspan and Treasury secretary Larry Summers—a $62 trillion market (nearly four times the size of the entire US stock market) remained utterly unregulated, meaning no one made sure the banks and hedge funds had the assets to cover the losses they guaranteed.
So, I'd like to know why Factcheck.org decided that in their comprehensive review of who is to blame, they didn't include any mention of the Commodities Futures Modernization Act. In fact, to me after following and reading about this for weeks, it seems like a glaring omission. So much so, I wrote to the editors. I'll let you know if I get a reply.
Here's the list of what they blame for the economic mess. Note, they do call it a "partial list" but that only leads me to wonder why they'd really dwell on Gramm-Leach-Bliley, but omit this.
The Real Deal
So who is to blame? There's plenty of blame to go around, and it doesn't fasten only on one party or even mainly on what Washington did or didn't do. As The Economist magazine noted recently, the problem is one of "layered irresponsibility ... with hard-working homeowners and billionaire villains each playing a role." Here's a partial list of those alleged to be at fault:
* The Federal Reserve, which slashed interest rates after the dot-com bubble burst, making credit cheap.
* Home buyers, who took advantage of easy credit to bid up the prices of homes excessively.
* Congress, which continues to support a mortgage tax deduction that gives consumers a tax incentive to buy more expensive houses.
* Real estate agents, most of whom work for the sellers rather than the buyers and who earned higher commissions from selling more expensive homes.
* The Clinton administration, which pushed for less stringent credit and downpayment requirements for working- and middle-class families.
* Mortgage brokers, who offered less-credit-worthy home buyers subprime, adjustable rate loans with low initial payments, but exploding interest rates.
* Former Federal Reserve chairman Alan Greenspan, who in 2004, near the peak of the housing bubble, encouraged Americans to take out adjustable rate mortgages.
* Wall Street firms, who paid too little attention to the quality of the risky loans that they bundled into Mortgage Backed Securities (MBS), and issued bonds using those securities as collateral.
* The Bush administration, which failed to provide needed government oversight of the increasingly dicey mortgage-backed securities market.
* An obscure accounting rule called mark-to-market, which can have the paradoxical result of making assets be worth less on paper than they are in reality during times of panic.
* Collective delusion, or a belief on the part of all parties that home prices would keep rising forever, no matter how high or how fast they had already gone up.
Please take a look at the whole article and let me know if I'm being over sensitive, but it seems like it tilts towards letting Republicans far too much off the hook while sticking the Democrats too far on.
But then, unlike Factcheck.org, I do not pretend that I'm unbiased.