Shocked, shocked by greed
CONFRONTED with unprecedented turmoil in the financial sector, Republican presidential candidate John McCain first resorted to a cliche, insisting that "the fundamentals of our economy are strong." But the bad news keeps on coming - first the failure of the investment house
But unless it's backed up by rules that keep those excesses in check, McCain's indignation is only so much empty rhetoric. In recent days, he has suddenly come to favor "strong and effective regulation," but over the years he has shown an aversion to tough rules. In the 1990s, he supported legislation that erased major Depression-era controls on the financial sector.
Greed on Wall Street is like vanity in Hollywood, or ambition in Washington - an occupational hazard that won't be cured anytime soon. Anyway, a healthy economy doesn't require saints. It does require transparency in markets; in other words, people need to understand what it is they're buying and selling.
McCain is calling for a commission to investigate how the current turmoil occurred. Sounds great, except that the answer to that question is already depressingly clear. During the real estate boom of the first half of this decade, people with bad credit took out unsustainable mortgages. Investment firms bought those loans and then sliced them up and sold them off as investment-worthy securities. And at every turn, the potential downsides of these financial instruments grew murkier and murkier.
Government could have played a constructive role by making it easier for borrowers to understand their mortgages and by requiring financial institutions to maintain more capital. Democratic candidate Barack Obama has called for these and other helpful steps. While McCain has focused on the conduct of individual executives, Obama has shown a greater inclination to set up systems that minimize abuses.
Smart financial regulation stabilizes and supports the free market. As Representative Barney Frank, chairman of the House Financial Services Committee, pointed out in an interview yesterday, the well-regulated commercial banking industry is faring well - and is now being called upon to shore up unregulated financial firms.
Perhaps McCain's newfound desire to rein in destructive financial practices is genuine. Or perhaps the Arizona senator is just scrambling to deal with a financial crisis that his own philosophy abetted. 