In recent days, the federal government has stepped in to bail out mortgage giants Fannie Mae and Freddie Mac, while the Treasury Department took a contrasting decision to stand aside and let the Lehman Brothers investment bank seek bankruptcy protection. <\/p>\n
Another longtime Wall Street institution, Merrill Lynch, announced it will accept a discounted buyout from Bank of America. <\/p>\n
And on it goes. <\/p>\n
Democrats immediately attempted to tie the growing financial crisis to Republicans by singling out \u201cthe policies advocated by John McCain\u2019s former senior adviser,\u201d citing a 1999 law co-sponsored by then-Sen. Phil Gramm, R-Texas., that paved the way for consolidation between commercial and investment banks. <\/p>\n
(Mr. Gramm served as GOP presidential candidate McCain\u2019s chief economic adviser until July, when he resigned after drawing fire for commenting that America is in a merely \u201cmental recession\u201d and has \u201csort of become a nation of whiners.\u201d) <\/p>\n
Senate Majority Leader Harry Reid, D-Nev., made a scathing floor speech Tuesday morning in which he paid his standard unearned compliment to Herbert Hoover, using \u201cthe Great Engineer\u2019s\u201d name as a synonym for do-nothing-ism. At least, I assume that\u2019s what he meant when he compared Sen. McCain\u2019s economic approach with that of the Hoover administration. <\/p>\n
(In real life, Herbert Hoover was known as \u201cthe Great Engineer\u201d not merely because of his background building public works projects, but because he was just the kind of economic meddler the Democrats now pine for, sitting up late at night on the telephone, wrangling business leaders not to slash inflated wages and prices — obvious but rejected adjustments which might have brought the Great Depression to a much quicker end. Nor did the policies of the dilettante Franklin Roosevelt — who campaigned against Hoover in 1932 on a solemn vow to \u201cimmediately and drastically reduce government expenditures by abolishing useless commissions and offices, consolidating departments and bureaus … to accomplish a savings of not less than 25 percent in the cost of the federal government,\u201d and who once elected would literally get up in the morning and joke with his advisors about where they should set the price of gold that day — fix anything. The Great Depression was worse by many measures in 1937 than it had been in 1933.) <\/p>\n
\u201cThe same Phil Gramm who, as a senator, was responsible for deregulation in the financial services industries that paved the way for much of this crisis to occur,\u201d Sen. Reid clarified Tuesday, presumably puzzling many busy workers at the FDIC and Federal Reserve, since their agencies would no longer exist if the financial services industry had truly been \u201cderegulated\u201d a decade ago. <\/p>\n
\u201cIt was Phil Gramm who pushed legislation through a Republican Senate that allowed firms like Enron to avoid regulation and destroy the life savings of its employees, and it was Phil Gramm\u2019s legislation that now allows Wall Street traders to bid up the price of oil, leaving us to pay the bill,\u201d Sen. Reid said. <\/p>\n
Out on the campaign trail, Democratic presidential nominee Barack Obama blamed the falling dominos on \u201cthe economic philosophy\u201d that he said Republican rival John McCain shares with President Bush. <\/p>\n
The finger-pointing is fully expected, though there\u2019s plenty of blame for all. It was Democrat Bill Clinton who helped reshape the financial landscape in the late 1990s, after all, signing the bill that removed Depression-era barriers between commercial banks and investment firms as part of a shift in which left-wing Democrats sought to loosen up mortgage practices, complaining minority neighborhoods were being \u201cred-lined.\u201d <\/p>\n
That, in turn, allowed the creation of these very financial behemoths which — we now realize — sought higher returns to stay ahead of inflation by buying complicated mortgage derivatives based on those same unsound lending practices Democrats had demanded. <\/p>\n
And who originally turned loose the Federal Reserve to inflate the currency by severing the links between the paper \u201cdollar\u201d and silver and gold — launching this race for unrealistically high rates of return? <\/p>\n
Democrats Franklin Roosevelt and Lyndon Johnson — though subsequent Republican administrations went happily along for the ride. <\/p>\n
It\u2019s exasperating that the parties now pretend to fundamentally disagree on what should be done, when it\u2019s equally clear more heavy-handed regulation of these institutions will be forthcoming no matter which candidate is elected. <\/p>\n
But since we\u2019ve been hearing a lot about \u201ccode words\u201d lately, it seems fair to ask what Sen. Obama means when he blames the current meltdown on \u201cthe economic philosophy\u201d that he says Republican rival John McCain shares with President Bush. <\/p>\n
What \u201ceconomic philosophy\u201d can he be referring to, and what would be his alternative? <\/p>\n
As the Wall Street Journal and Investors Business Daily and the National Review day by day dig deeper into the associations that have formed the worldview of this young Chicago \u201ccommunity organizer\u201d with so little experience in the private sector — his childhood mentor, poet and Communist Party member Frank Marshall Davis; the patron saint of the modern \u201ccommunity organizer,\u201d Saul \u201cThe Red\u201d Alinsky; William Ayres of the Weather Underground; America-hating radical preacher Jeremiah Wright — it\u2019s hard to conclude he means to blame anything but \u201cthe economic philosophy\u201d known as free-market capitalism. <\/p>\n
If Sen. Reid believes \u201cWall Street traders\u201d should not be allowed to \u201cbid up the price of oil, leaving us to pay the bill,\u201d how would he stop them? By installing federal price controls on the price of oil? Former Soviet economic adviser Yuri Maltsev tells us how well that worked in the Soviet Union: \u201cThe government guaranteed chicken would never sell for more than 40 kopeks, and it never did. Of course, there was no chicken in the stores. …\u201d <\/p>\n
Price controls bring shortages, rationing, and black markets. Consumers might like oil back at $30 a barrel, but could any oil be produced or imported at that price — given how the Fed has devalued the dollar — or would our tanks simply run dry? <\/p>\n
(Traders don\u2019t \u201cleave us to pay their bills,\u201d by the way. You can only \u201cbid up\u201d the price of oil by offering to buy it at a higher price. If the traders fail to pay, that\u2019s the end of their days on the floor. It\u2019s only members of Congress who spend money they don\u2019t have and then \u201cleave us to pay the bill.\u201d) <\/p>\n
Mind you, neither George W. Bush nor John McCain is a radical free-market, laissez-faire kind of guy. If anything, John McCain failed to light a fire under his conservative Republican base — until his selection of running-mate Sarah Palin — precisely because he shares far too much of the taste for government meddling and regulation favored by Senators Reid and Obama. (See \u201cMcCain-Feingold.\u201d) <\/p>\n
But since Sen. Obama has criticized the underlying \u201ceconomic philosophy\u201d shared by President Bush and Sen. McCain, which can only be a code word for \u201cfree-market capitalism,\u201d he should now come clean with the American people. <\/p>\n
As an underlying economic philosophy, there are only two known alternatives to \u201cfree-market capitalism\u201d: fascism and communism. <\/p>\n
Sen. Obama should explain which of the known alternatives he prefers. <\/p>\n","protected":false},"excerpt":{"rendered":"
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