Obama Ignores Key Factors by Blaming Republican Deregulation

We’ve all heard Obama repeatedly point the finger at McCain & Republicans for deregulating Wall Street - leading to this financial mess. Obama has basically become like a bad song on the radio - you hear something enough, it actually starts to sound decent, or in Obama’s case, seem like truth.

But deregulation isn’t really at the heart of the issue, according to American Enterprise Institute Fellow in recent Bloomberg piece (bolding added),

In the debate on Sept. 26, Democratic presidential nominee Barack Obama argued that the current crisis in the financial markets is the result of Republican deregulation.

The credibility of the charge depends on ignoring several important facts:

– There has been a great deal of deregulation in our economy over the last 30 years, but none of it has been in the financial sector or has had anything to do with the current crisis. Almost all financial legislation, such as the Federal Deposit Insurance Corp. Improvement Act of 1991, adopted after the savings and loan collapse in the late 1980s, significantly tightened the regulation of banks.

– The repeal of portions of the Glass-Steagall Act in 1999 — often cited by people who know nothing about that law — has no relevance whatsoever to the financial crisis, with one major exception: it permitted banks to be affiliated with firms that underwrite securities, and thus allowed Bank of America Corp. to acquire Merrill Lynch & Co. and JPMorgan Chase & Co. to buy Bear Stearns Cos. Both transactions saved the government the costs of a rescue and spared the market substantial additional turmoil.

None of the investment banks that got into financial trouble, specifically Bear Stearns, Merrill Lynch, Lehman Brothers Holdings Inc., Morgan Stanley and Goldman Sachs Group Inc., were affiliated with commercial banks, and none were affected in any way by the repeal of Glass-Steagall.

– Republicans have favored financial regulation where it was necessary, as in the case of Fannie Mae and Freddie Mac, while the Democrats have opposed it. In 2005, the Senate Banking Committee, then under Republican control, adopted a tough regulatory bill (for which McCain was a voluble co-sponsor) for Fannie and Freddie over the unanimous opposition of committee Democrats. The opposition of the Democrats when the bill reached the full Senate made its enactment impossible. [...]

– The subprime and other junk mortgages that Fannie and Freddie bought – and the market in these mortgages that their buying spawned — are the underlying cause of the financial crisis. These are the mortgages that the Treasury Department is asking for congressional authority to buy. If the Democrats had allowed the Fannie and Freddie reform legislation to become law in 2005, the entire financial crisis might have been avoided.

Obama & Democrats are pulling a bait & switch with regard to subprime lending as well. Apparently, Democrats had nothing to do with pushing home ownership for those who couldn’t afford homes. At-will dementia is a powerful and pathetic thing.

Technorati Tags: Economy, Fannie Mae, Freddie Mac, housing crisis