A Nation of Village Idiots

Don't let them tell you this economic meltdown is a complicated mess. It's not. Our national financial crisis is readily understood by anyone who has seen greed and hypocrisy. But we are now witnessing them on a profound, monumental scale.

Conservative Republicans always want the government to stay out of business and avoid regulation as long as they are making lots of money. When their greed, however, gets them into a fix, they are the first to cry out for rules and laws and taxpayer money to bail out their businesses. Obviously, Republicans are socialists. The Bush administration has decided to socialize the debt of the big Wall Street Firms. Taxpayers didn't get to enjoy any of the big money profits on the phony financial instruments like derivatives or bundled sub-prime paper, but we get the privilege of paying for their debt and failures.

Let's just consider the money. The public bailout of insurance giant (becoming a dwarf) AIG is estimated at $85 billion. According to one report, that's more than the Bush administration spent on Aid to Families with Dependent Children during his entire time in office. That amount of money would also pay for health care for every man, woman, and child in America for at least six months.

How did we get here?

That's pretty easy to answer, too. His name is Phil Gramm. A few days after the Supreme Court made George W. Bush president in 2000, Gramm stuck something called the Commodity Futures Modernization Act into the budget bill. Nobody knew that the Texas senator was slipping America a 262 page poison pill. The Gramm Guts America Act was designed to keep regulators from controlling new financial tools described as credit "swaps." These are instruments like sub-prime mortgages bundled up and sold as securities. Under the Gramm law, neither the SEC nor the Commodities Futures Trading Commission (CFTC) were able to examine financial institutions like hedge funds or investment banks to guarantee they had the assets necessary to cover losses they were guaranteeing.

This isn't small beer we are talking about here. The market for these fancy financial instruments they don't expect us little people to understand is estimated at $60 trillion annually, which amounts to almost four times the entire US stock market.

And Senator Phil Gramm wanted it completely unregulated. So did Alan Greenspan, who supported the legislation and is now running around to the talk shows jabbering about the horror of it all. Before the highly paid lobbyists were done slinging their gold card guts about the halls of congress, every one from hedge funds to banks were playing with fire for fun and profit.

Gramm didn't just make a fairy tale world for Wall Street, though. He included in his bill a provision that prevented the regulation of energy trading markets, which led us to the Enron collapse. There was no collapse of the house of Gramm, however, because his wife Wendy, who once headed up the Commodities Futures Trading Commission, took a job on the Enron board that provided almost $2 million to their household kitty. And why not? Wendy got a CFTC rule passed that kept the federal government from regulating energy futures contracts at Enron.

If John McCain gets elected and chooses Phil Gramm as his Treasury Secretary, which many politico types see as likely, they will be able to talk about the good old days when Gramm was in congress and McCain was in the senate and they were in the midst of the Savings and Loan crisis.

The S and L scandal, which may look precious when compared to our present cascade of problems, isn't hard to understand, either. But it is impossible to take John McCain seriously on our current financial Armageddon since he was dabbling in the historic collapse of 747 S&Ls that occurred during Ronald Reagan's era. In the early 80s under the Republican president, congress deregulated the savings and loan industry in much the same way that Gramm made sure there were no laws hindering our current financial malefactors on Wall Street. S&Ls simply lobbied until they had less regulation and then began making rampant, unsound investments.

The guy who was going the wildest with financial freedom was Charles Keating, who headed up Lincoln Savings and Loan of California. Because the S&L industry had managed to get congress to increase FDIC insurance from $40,000 to $100,000 on deposits, the irresponsible investing of people like Keating began to put taxpayer insurance funds at great risk of loss. Keating placed money in junk bonds and questionable real estate projects and because so many other S&Ls started acting the same way the Federal Home Loan Bank Board (FHLBB) began to push for a regulation that limited these dangerous speculative "direct" investments to 10% of an S&L's assets.

And Keating didn't like it; he called on a private economist named Alan Greenspan, who promptly produced a study saying that there was no danger in "direct" investments.
But that didn't convince the FHLBB and as further scrutiny showed Lincoln Savings and Loan was making even more historically bad investment decisions, a federal investigation was launched.

So Keating called his home state senator John McCain.

McCain and four other US senators (known to history as the Keating Five) met with Edwin Gray, then chairman of the FHLBB. McCain had been hesitant to attend but had reportedly been called a "wimp" behind his back by Keating. The message to the FHLBB and Gray from the Keating Five was to lay off Lincoln and cool the investigation. Gray and the FHLBB did not relent but Lincoln stayed in business until 1989 when it collapsed with the rest of the S&L industry. The life savings of more than 20,000 elderly investors disappeared with the failure of Lincoln. Keating went to prison for five years.

Charles Keating was John McCain's pal. They met in 1981 and Keating dumped $112,000 in the McCain campaign bank accounts between '82 and '87. A year before McCain met with the FHLBB regulators, his wife Cindy and her father, according to newspaper reports at the time, invested about $360,000 in one of Keating's shopping centers. The Arizona Republic reported McCain and his wife and their babysitter took nine trips on Keating's private jet to the Bahamas to stay at the S&L liar's decadent Cat Cay resort. The senator didn't pay Keating back for the plane rides until years later when he was under investigation.

McCain wasn't found guilty of anything but bad judgment, which is an historic understatement. Republicans, who led deregulation of the S&L industry, delayed the bailout until after the 1988 election to make sure George H. W. won the White House. The cost to taxpayers for helping these 747 bad actors in the S&L industry was finally estimated at $1.4 trillion. If the bailout had begun in 1986 instead of after the presidential election, the cost would have been contained at $20 billion.

And now the Republicans who engineered our present crisis and got us into the S&L debacle of the 80s are before us saying the markets need regulation. No, actually, they don't need regulation. Why don't you Republican capitalists who believe in the free markets get out of the damned way and let them work and allow these various financial nuthouses be crushed by the weight of their own stupidity? When it is all over, we'll have sane and sober people create laws to make sure it doesn't happen again, assuming we survive this chaos.

Also, while you are handing out our tax money to idiots on Wall Street, save a little of the long green for the unemployed auto and construction workers and all of the other people who have lost their jobs because you were too stupid to notice what Phil Gramm was doing and you were convinced everything was going to be just fine because the markets work.

These, then, are the people -- the Republicans -- who want to run our government for four more years. John McCain isn't just one of them. He rides their jets. He takes their campaign donations. He makes them his campaign advisors. And he tells us to trust him.

He must think we are a nation of village idiots.

Hell, maybe we are.

Follow James Moore on Twitter: www.twitter.com/moorethink

Comments

[All in All]

The sad thing about the Title of this Article is how it seems like Most of the People in the Upper-Levels of the American Government doesn't understand or want to believe that We all Rise & Fall as a Nation, I would say that not all is as it may seem, however all most Americans have to do is take a look at Our Economy and the prospects of most Families & what it takes (a person/s has to give-up & do) to actually achieve at least a decent overall Life for Themselves & Their Family Members,now of days.

Slowly the Circle of Life & other Things has been degrading here in America, which has had & will have enormous set-backs on All Americans & America it's self in so-many vital ways, I guess Our Government will just out-source most Jobs/Careers and also import most of Americas Military in the Future....

[lastams]

Great post.
I was watching the evening news and heard the comment that the high rolling investment bankers had"screwed up".
Well they didn't screw up ... they accomplished exactly what they set out to do; get stinking rich.
And now that they've sucked what they can out of the middle class, they can team up as advisers to Paulson, himself a product of the very same industry, and spread even more candy around. Lots more candy.

At the end of the day, the big difference between this debacle and the savings and loan crisis (besides the sheer magnitude) is the extent to which the investment economy has become THE economy.
Back in the old days when we still had manufacturing in this country there was an actual concrete infrastructural basis behind our currency.
How do we regain international trust in our economy when it floats on speculation and credit swaps?
In the end bailouts will not save us from a fundamentally flawed philosophy ... investment without infrastructure. In the end our foundation will be shown for what it is ... a bunch of worthless paper.

[waynesmyer]

John McCain: Keating Five> Neil Bush>Silva­rado>Ernes­t McCain> Silver City Banks
WE MUST GIVE AWAY $700 BILLION TO THE RICH AND IT WILL TRICKLE DOWN TO THE POOR!'
RIGHT?
"TRICKLE DOWN" Piss on the little people!

[Jason Abdon]

Your line is D'oh.

[nicole5]

For whatever its worth, which is probably not much, true conservatives are entirely against this bailout and are trying to stop it.

I have yet to hear a single coherent explanation of what would happen if we don't go ahead with this bailout. The media and Bush & Co tell us it would be the end of the world, but never give specifics. Sure some banks would fail, but not all of them. I don't understand why this is so necessary, and why so fast.

[TrooAmerican]

Its really not worth much.
Know why?

Because True conservatives along with Faux conservatives - known affectionately as criminals in the GOP, all supported Bush twice, and now are on McCain's Palin Wagon, and they are all in the same GOP boat because of their local state and federal support of the same policies regardless of your own personal use of credit cards.

[JoshuaMT55]

ELiza W "But how do you explain the fact that it was Clinton who signed (or didn't veto)"

Because the Repugs put together a veto proof bill. It didn't matter what Clinton did. Quite blaming everything on Bill. Besides, isn't the Repugs the party of personal responsibility?? Well take some!

Gramm and his kind deserve a monument to their greed. We should create a national monument in their name, call it the "Traitors to the American Dream".

[PPINTACURA]

partial truth, truth just the same. it's untrue to place all of it at the republican's feet, although they are hateful and hypocritical. robert rubin see: http://us1.institutionalriskanalytics.com/pub/IRAstory.asp?tag=275 and clinton, veto proof or not, there are the right things to do and the wrong things, the results of which we experience presently.

this is another bushinc. hysteria fear stunt designed to scare everybody, and they expect americans to fold AGAIN to let the same bozos who brought us here to solve the problems they've created.

There's a bank crisis? Banks don't trust one another? Wow, they've finally gotten smart? Banks are untrustworthy usurers, sleazy and dishonest. Banks, brokers, corporations and their congress, their government and their mouthpieces aren't trustworthy - shameless and shameful. I say let the screws bleed out, no bailouts, no guarantees, zero tolerance, total responsibility. As the republicans say, the market will correct its own. They need to FEEL some of the heartless tough love they apply to the poor, the sick and the hungry.

[justice4juveniles]

zero tolerance and tough love was exclusively reserved for Joe 6-Pack but has begun to trickle up to the wine sippers, but definitely is never going to be for the Crystal guzzlers.

[elizaW]

Your refusal to include the facts that prove the Democrats are partially responsible for this crisis destroys your credibility and puts everything you've stated into question.

[idest]

How responsible is partially responsible? 2%? 5%? What? The fact of the matter is that the current crisis is due solely to the unchallenged reign of conservative economic ideology. But you won't find one conservative to admit it, because there were Democrats in government. Absolutely pathetic, conservatives. Your ideology has failed, and all you can do is point your fingers at someone else. Pathetic.

[df2112]

No, the proclamation that the current crisis is due to an "economic ideology" is, um, myopic. The current crisis is due solely to people reneging on their promises to pay their mortgages. There are side effects of this shameful behaviour, most notably the incredible inflation of home prices between 2002 and 2007 (locking out those responsible people who refused to pay more than 3 times their household income on a mortgage). The problems goes as follows:

Irresponsible, greedy people ("middle class", in your parlance, but really nowhere near middle class) --> Irresponsible, greedy realtors --> Irresponsible, greedy retail banks --> Irresponsible, greedy investment banks.

So the group that is furthest removed from this crisis are the ones that are imploding in front of us. And those that are the root of the problem are going to be bailed out.

[MsLiz]

Aid to Families with Dependent Children was abolished during the Clinton administration, so it makes sense that the Bush administration has not funded it. See Temporary Aid for Needy Families, its replacement.

[xdr]

Thanks for the explanation. But how do you explain the fact that it was Clinton who signed (or didn't veto) the budget bill containing the Commodity Futures Modernization Act in 2000? There must be a fine balance between regulation and free market, whoever gets that right wins my vote.

[DeSwiss]

I'll take that one.....

One word: DINO.

:-|

[dawlishgal]

thanks for the explanation, especially for the clarifications of the roles of Gramm and Greenspan.

How did McCain manage to be the only one of the Keating 5 to squirm out of responsiblity for other than "bad judgment?" He was at leastt as guilty as the others, but, of course, the Republicans were the ones doing the investigating. If McCain is elected, is there any chance that a Democratic congress would hound him and eventually impeach him the way the Republicans hounded and impeached Clinton? I certainly hope so. .

[Kohimama]

McCain was not the only one to squirm out of the Keating 5 - so did John Glenn because they were both "American Heroes." He's been riding that train far too long.

[lovethesinner]

Great read, Jim.
I heard some Republican with a conscience say, "at least Hugo Chavez doesn't pretend he isn't stealing from you."

They are attempting to NATIONALIZE FINANCE. That isn't SOCIALISM, it's communism for rich people:

WE'RE PRIVATIZING PROFIT, and NATIONALIZING RISK. As Josh at TPM said, "this is MORAL HAZARD on steroids."

http://en.wikipedia.org/wiki/Moral_hazard#In_finance

I'm glad that Obama is going slow to react to this crisis. There's a lot of "deja vu all over again" (if you know what I mean) comparing this to the war in Iraq. They're calling it "a FINANCIAL WAR of CHOICE" just like Bush's "WAR of CHOICE" in Iraq:

A Bad Bank Rescue by By Sebastian Mallaby
Sunday, September 21, 2008

"The first is whether the bailout is necessary. In 1989, there was no choice. The federal government insured the thrifts, so when they failed, the feds were left holding their loans; the RTC's job was simply to get rid of them. But in buying bad loans before banks fail, the Bush administration would be signing up for a financial war of choice. It would spend billions of dollars on the theory that preemption will avert the mass destruction of banks. There are cheaper ways to stabilize the system."

http://www.washingtonpost.com/wp-dyn/content/article/2008/09/20/AR2008092001059.html

Obama-Biden '08

[harobamason]

If Democrats were Republicans they would approve this message - thanks James

[freedog]

Let the Dum's try to earmark this bill to bail out irresponsible homeowners and you will hear from all of us responsible homeowners expected to bail them out in November. 96% of homeowners are current on their mortgage.

[skippypicasso]

If that's true, then there's no need for a bailout due to no financial 'crisis.' Thanks for clearing that up for me.

[idest]

So you have no problem bailing out irresponsible financial giants, but bailing out your neighbor for their irresponsibility sticks in your craw? What a patriot.

[df2112]

I have no problem whatsoever. Bailing out financial giants means that my tax money will be diverted away from where I want it to go. However, that's exactly how it always has been, so it's basically a non-event.

Bailing out my neighbor means that the house I want that is truly worth $350K will actually cost me $600K.

[bluff]

As long as we treat free-market capitalism as created by god and socialism as created by the devil we will experience financial feast and financial famine. Get used to it.

If and when we ever get over this childish attitude toward economic systems we'll be able to look forward to a fairly smooth financial ride. Of course if binging is your bag and starving doesn't bother you...

[gmgl]

thank you thank you thank you! Finally someone puts forward what really happened. Good old Phil Gramm and his fellow republicans were also behind pushing repeal of the Glass-Steagall Act of 1933 in 1999 too

Clinton signed GLASS-STEAGALL BECAUSE IT WAS VETO PROOF! In other words Clinton could not stop this thing with his veto, he could not have stopped it whether he signed it or not. Look it up, that fact is even on wikipedia. The vote was primarily along party lines. If the responsibility is "shared" then let's put it where it belongs, primarily with the republicans in congress and some greedy democrats who crossed over to help them. Clinton could not veto it and stop it. Let's be clear.

[spiffarino]

Fine, but don't fool yourself into thinking Bill Clinton wasn't party to it. His saving grace was that he was working for the middle class as much as he worked for Wall Street.

[idest]

Most of the time thats all a Democratic President can do if they're stuck with a Republican Congress.