Root Cause of Current Crisis

If you don't have time to view this whole video clip, I will summarize. The root cause of the current crisis is the spread of bad mortgage debt through the financial system. This debt flowed because Fannie Mae securitised high risk mortgages and sold them to Wall Street and banks. Fraud in the valuation of these securities also played a role, resulting in the sacking of the Harold Raines, the head of Fannie Mae. The political push that allowed this to happen was the Community Reinvestment Act which turned every mortgage institution in the country into a predatory lender. Obama has much closer ties to the problem than John McCain who made early attempts to correct the problem. This all sounds very dry, but the video is highly entertaining.

H/T Drudge.

Wrong-footed...Again

Team Barry appears to have been caught off guard by John McCain's announcement today that he was suspending his campaign to work on solving the financial crisis. Meanwhile, Harry Reid has painted Obama's campaign into a tough position. According to Roger Hedgecock, yesterday, Harry Reid was calling on John McCain to return to Washington to ensure that enough Republican votes get delivered to pass the administration's bail out package. I couldn't find the link to the direct quote, but here is Harry making this clear through surrogates. Now, Harry is backtracking with statements like "We need leadership, not a campaign photo op."

The problem for Obama is that McCain has again grabbed the headlines and taken a leadership role. I am praying for McCain to come to his senses and offer a package that breaks sharply with Bush socialism and embodies free market principles. That would be both best for the nation, see yesterday's post and burnish his credentials as the "maverick" and better able to bring real change. Also, it would put Obama in the tough position of being on the side of Bush on an important issue.

Meanwhile Obama looks churlish for saying the debates must go on. Further, his statements that Presidents must be able to work on more than one thing at a time looks out of touch. Both candidates are senators, and the action right now is in Congress, so to suggest that the campaign and debates must go on, plays to Obama's weakness, that he is all talk and no action. This is also a tough sell after Biden's comments that Bush should emulate Roosevelt and get on TV to talk about the 1929 stock market crash. (But Joe is in a lot of trouble with Suit already, or maybe not; there is a theory that he gaffes so often, it's not newsworthy or damaging to Obama.)

Meanwhile, we have normally sensible Republicans like KT, pushing for passage of this bail out on the theory that there is no other way out and it won't really cost that much. Some action is needed, after all the government created this problem in the first place through low interest rates, Fannie Mae's practices, and the push to give home loans to the unqualified. But the massiveness of the intervention and the nationalization of an entire industry are incompatible with finding long term solutions.

I finally found the quote I was looking for. Here is Obama answering a question on the debates and the crisis sans teleprompter:

QUESTION: Do you plan on attending the debate on Friday? And is Senator McCain playing politics with this by saying (OFF-MIKE) not go to this debate?

OBAMA: Well, let me say this. Just to go through the chronology today, I called him this morning with the intent of issuing a joint statement. I got called back around 2:30. We had a conversation. I made the suggestion to him. He agreed to that suggestion.

He then suggested, in addition, that we need to have a meeting in Washington with the congressional leaders and potentially the president. And what I told him is, well, why don't we get the joint statement out first to enunciate the principles that both of us agree to and to send a clear signal to the members of Congress that this, in fact, is something that should not be bogged down by partisan politics?

And, now, when I got back to the hotel, he had gone on television to announce what he intended to do. I believe that our staffs are still working on this joint statement.

I -- I think the important principle at this point is to send a clear signal to members of Congress, as well as the country, that this is a serious problem that has to be solved and not -- should not be subject to the usual partisan politics.

With respect to the debates, it's my belief that this is exactly the time when the American people need to hear from the person who, in approximately 40 days, will be responsible for dealing with this mess. And I think that it is -- it is going to be part of the president's job to deal with more than one thing at once.

I think there's no reason why we can't be constructive in helping to solve this problem, and also tell the American people what we believe and where we stand and where we want to take the country. So, in my mind, actually, it's more important than ever that we present ourselves to the American people and try to describe where we want to take the country and where we want to take the economy, as well as dealing with some of the issues of foreign policy that were initially the subject of the debate.

What the heck did he just say? I listened to it first, now I see it in writing, it's scary. Tell us your position, say something intelligible, convince us you're not an empty suit. Also hat tip to Roger Hedgecock, who points out that neither McCain nor Obama will be President in 40 days.

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More Regulation - There's a Winning Formula

I mistakenly turned on the start of Keith Olbermann's program this evening. In his typical O-booster style, the Keithster stated that Obama was offering a six point plan for healing the economy while McCain could only complain about alphabet soup.... That's when I hit the remote. Figuring Olbermann to always be exagerating for his guy, I thought I would check up on this six point plan. It's proving tougher than I thought. While many web sites allude to Obama having such a plan, for the life of me I can't find the details. Why am I not surprised?

However, what little I could find:

Obama laid out a six-point regulatory plan. It would subject all financial institutions that can borrow from the government to more oversight, crack down on trading practices he said border on market manipulation and create a financial advisory group to discuss potential problems with the president.

Obama also said he would push a $50 billion emergency economic plan to repair infrastructure and schools, offer a 10 percent tax credit on mortgage costs to middle-class homeowners and change bankruptcy laws to make it easier for people in financial trouble to stay in their homes.

So clearly more regulation is the answer? How about we stop creating these messes when the Congress establishes crony-capitalist enterprises like Fannie and Freddie with implicit guarantees from the taxpayers. How about we let some banks fail and let some real pain hit Wall Street. Protect the depositors by all means through the FDIC. But without the pain of failure and loss of their wealth, the Wall Street types will continue to take risks that are too large for the potential gain.

Secondly, how the heck is $50 billion for infrastructure and schools related to this crisis. Obama's instincts to throw my money at problems are truly frightening. Also, memo to Suit, it already is almost impossible to lose your home in bankruptcy proceedings. so please get a clue. So after throwing $200 billion at Fannie and Freddie and another $85 billion at AIG, Obama says what the heck, let's throw down a side bet on infrastructure for another $50 billion. Meanwhile the federal deficit is approaching $500 billion this year before the costs of bail outs. Wait, the Fannie/Freddie bail out won't cost anything, the geniuses in the Bush administration have decided that liability shouldn't be on the government's balance sheet. (Bush must REALLY hate McCain.)

And about that alphabet soup comment. McCain is in fact correct, the overlap in jurisdiction creates uncertainty, but also opportunity for the unscrupulous who use the confusion to their advantage. More effective and accountable regulation, not new regulation might be a better prescription to go with not creating the messes in the first place.