America’s financial crisis is a political crisis, too. In the course of just 10 days, the Federal Reserve propped up ailing mortgage giants Freddie Mae and Fannie Mac, refused to bail out the investment bank Lehman Brothers and balked at aiding mega-insurer AIG before coming through with a $85 billion loan in exchange for an 80 percent stake. Needless to say, the news has the financial markets roiling and the presidential candidates rushing to sound … well, presidential.
And to point fingers. John McCain blamed "greedy Wall Street excesses" for the crisis and called for greater transparency and accountability. Not to be outdone, Barack Obama blamed eight years of Republican governance and too few regulations on Wall Street.
"I certainly don’t fault Senator McCain for these problems," Obama said. "But I do fault the economic philosophy he subscribes to."
Is more government regulation of the economy necessary to protect average citizens from financial turmoil? Or is more government meddling likely to undermine free markets? Ben Boychuk and Joel Mathis, the RedBlueAmerica columnists, weigh in.
Watching John McCain and Barack Obama scramble to sound the most populist in the wake of the latest government bailout is a pathetic sight. Further politicizing the financial crisis will only worsen it. And the crisis is pretty bad already, abetted by bipartisan intrusions and stupid interventions.
Yet we hear that the federal government hasn’t done nearly enough to help abate the crisis. Congressional Democrats say greater regulation is the answer. Obama, for example, blames the current crisis on laws that deregulated the investment-banking industry — laws that a Democratic president signed and his running mate, Joe Biden, voted for.
More regulation? During the Bush years, financial regulations spread like a fungus. Republicans and Democrats alike supported the abominable Sarbanes-Oxley law, which has been a boon for accountants, lawyers and federal bureaucrats. Republicans and Democrats backed federal mandates on lenders to approve loans for low-income and credit-challenged borrowers. The result was a sub-prime lending frenzy and ongoing meltdown.
Sticking it to Wall Street? Although Obama has backed away from his pledge to raise taxes on Americans making $250,000 or more, he remains coy on whether he would raise the capital-gains tax from 15 percent to 20 percent. But in a nation of 100 million investors, raising the capital-gains tax would obliterate any benefit of a middle-class tax cut.
In a free market, there are always winner and losers. Always. Old Joseph Schumpeter was right: The "creative destruction" inherent in capitalism drives innovation, growth and long-term prosperity. All government can do is ensure that business is done fairly and transparently. It cannot and should not determine outcomes.
Bottom line: Government had a large and clumsy hand in making this mess. Does anyone really think government can clean it up?
We’re discovering once again that the apostles of the free markets don’t buy their own rhetoric. Oh, the titans of finance like to talk a good game about "winners and losers" and "personal responsibility," but such talk is forgotten when Bear Stearns, AIG or Freddie Mac are among the losers. The same people who scoff at economic safety nets for working-class Americans turn around and plead protection for the wealthiest.
Clearly, though, the markets need fixing. Neither presidential candidate has offered a specific plan to address the meltdown, but both think they know what went wrong. John McCain blames "greed and corruption" — individual bad actors on Wall Street, the economic equivalent of "a few bad apples." Barack Obama believes the problem is systemic, with roots in the deregulation craze of the 1980s and 1990s. Obama’s approach gives him a better opportunity to enact meaningful reforms.
Here is what’s clear: The markets cannot — should not — expect the taxpayers to save them and hope to escape regulations. If the government is going to be on the hook for tens of billions of dollars in rescue funds, then the government should try to prevent the problems from happening again. Will new regulations be perfect? Probably not. But it’s better than looking the other way and simply hoping things will work out better next time.
(Ben Boychuk and Joel Mathis blog daily at http://www.infinitemonkeysblog.com and http://joelmathis.blogspot.com.)