The result of conservative economics. Any questions?

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Slate Magazine summarizes

The New York Times, Washington Post, and Los Angeles Times lead with, and the Wall Street Journal devotes most of its front-page real estate to, the Sunday that shook up Wall Street. The LAT and WSJ announce the news with banner headlines this morning, and the Journal doesn't mince words: "Crisis on Wall Street." The fast-moving story has several parts to it, but here's the gist: Lehman Bros. will file for bankruptcy, Merrill Lynch agreed to be sold to Bank of America, and insurance giant American International Group could be the next big casualty of the global credit crisis. In an effort to prevent more trouble, the Fed announced it would make it easier for securities firms to borrow money, and 10 big banks agreed to create a $70 billion fund that any of them could access if they find themselves in desperate need of cash. The WP says that the American financial system "faced its gravest crisis in modern times" this weekend.

...


The NYT says Sunday was "one of the most dramatic days in Wall Street's history" that will "reshape the landscape of American finance." The WSJ agrees and notes that the "American financial system was shaken to its core" yesterday, an assessment that is easily backed up by all the panicked statements from Wall Street insiders, who are bracing for bad news when the markets open today. "These are the most extraordinary events I've ever seen," said the co-founder of the private equity firm the Blackstone Group. "We are in a hysteria," a banking analyst tells USAT. "This is frightening as hell," another analyst summarizes to the LAT.

John McCain responds that :

We will never put America in this position again. We will clean up Wall Street. This is a failure.

Naturally, he ignores the fact that his main financial advisor, Phil Gramm, was a leading cause of this mess.

As this diary point out (and our mainstream media assiduously ignores):

In 1933, a few years following the stock market crash, Congress passes the Glass-Steagall Act, in hopes that regulating banks will help prevent market instability, particularly amongst Wall Street banks. The purpose of the act is to separate commercial banks that focus on consumers from investment banks, which deal with speculative trading and mergers.

The Glass-Steagall Act provided the proper oversight and entity separation that would prohibit banks and other financial companies from merging into giant trusts (conflict of interests) -- giant trusts or corporations being more powerful, naturally, and having the seemingly limitless capital to lobby their corporate interests, however, with a very myopic scope (particularly when it comes to factoring in potential losses -- most banks, as seen in contemporary times, chose not to anticipate losses in the mortgage market; they presumed home prices would continue to appreciate).

In 1999, former Senator Phil Gramm ... set out to completely gut the Glass-Steagall Act, and did so successfully, replacing most of its components with the new Gramm-Leach-Bliley Act: allowing commercial banks, investment banks, and insurers to merge (which would have violated antitrust laws under Glass-Steagall). Sen. Gramm ... had received over $4.6 million from the FIRE sector (Finance, Insurance and Real Estate donations) over the previous decade, and once the Act passed, an influx of "megamergers" took place among banks and insurance and securities companies, as if they had been eagerly awaiting the passage of Gramm's Act. Everything in between Glass-Steagall and Gramm-Leach-Bliley (i.e. Savings and Loan crisis/bust) was, in large part, the incubation period for what would take place over the nine years that would follow the passage of Gramm's Act: an experiment in deregulation.

Shortly after George W. Bush was elected president, Congress and President Clinton were trying to pass a $384 billion omnibus spending bill, and while the debates swirled around the passage of this bill, Senator Phil Gramm clandestinely slipped a 262-page amendment into the omnibus appropriations bill titled: Commodity Futures Modernization Act. It is likely that few senators read this bill, if any. The essence of the act was the deregulation of derivatives trading (financial instruments whose value changes in response to the changes in underlying variables; the main use of derivatives is to reduce risk for one party). The legislation contained a provision -- lobbied for by Enron, a major campaign contributor to Gramm -- that exempted energy trading from regulatory oversight. Basically, it gave way to the Enron debacle and ushered in the new era of unregulated securities. Interestingly enough, Gramm's wife, Wendy, had been part of the Enron board, and her salary and stock income brought in between $900,000 and $1.8 million to the Gramm household, prior to the passage.

Mother Jones is even more blunt in the linkages

As Mother Jones reported in June, eight years ago, Gramm, then a Republican senator chairing the Senate banking committee, slipped a 262-page bill into a gargantuan, must-pass spending measure. Gramm's legislation, written with the help of financial industry lobbyists, essentially removed newfangled financial products called swaps from any regulation. Credit default swaps are basically insurance policies that cover the losses on investments, and they have been at the heart of the subprime meltdown because they have enabled large financial institutions to turn risky loans into risky securities that could be packaged and sold to other institutions.

Lehman's collapse threatens the financial markets because of swaps. From Bloomberg:

Bond-default risk soared worldwide as the collapse of Lehman Brothers Holdings Inc. sparked concern than the $62 trillion credit-derivatives market will unravel....

Lehman, the fourth-largest securities firm until last week, has been one of the 10 largest counterparties in the market for credit-default swaps, according to a 2007 report by Fitch Ratings. The market, which is unregulated and has no central exchange where prices are disclosed, has been the fastest-growing type of so-called over-the-counter derivative, according to the Bank for International Settlements.

"The immediate problem is the derivative default swaps market, in which a plethora of institutional accounts and dealer accounts are at risk,'' Bill Gross, manager of the world's largest bond fund at Pacific Investment Management Co. in Newport Beach, California, said in an interview with Bloomberg Radio yesterday. "It induces a tremendous amount of volatility and uncertainty.''

Barclays Capital analysts have estimated that if a financial institution with $2 trillion in credit-default swap trades were to fail, it might trigger between $36 billion and $47 billion in losses for institutions that traded with the firm. So the Lehman fiasco--caused in part by the use of unregulated swaps--could lead to ruin elsewhere in the economy.

This was the same Sen. Gramm and his wife, by the way, that were SO instrumental in the Enron catastrophe.


And when the shit hit the fan? We were a nation of whiners

Somehow, I have the feeling that shit like this would have sunk the Democratic campaign. But, well, its okay, ladies and gents, if you are a Republican. To say nothing of the fact that it is the DEMOCRATS who are the elites. Funny how its conservative economics that seems to keep rewarding the rich and gutting the middle-class and poor, however.

Oh, and John McCain's other economic adviser? Thinks that the depression talk is WAY overblown, and this is all Obama's fault.




In the meantime, John McCain also thinks that the fundamentals of this economy are still strong.


What the fuck is he talking about? As Political Animal points out,

most analysts Economic growth, wages, unemployment, inflation, trade imbalance, value of the dollar, budget deficit, interest rates, etc.

Not John "I don't know much about the economy" McCain. He thinks that the American people and small business are the fundamentals of the American economy. Right then. And I REALLY have some people telling me, without a trace of irony, that John McCain has the experience to fix our economic problems.


While we are considering this, please note that Washington Mutual's credit rating has been downgraded to junk.