The Blog @ Spolitics

The Gramm-Leach-Bliley Canard

The Obama campaign is arguing that the cause of the current financial mess is a bill that repealed the separation of commercial and investment banks. Of course, Obama doesn’t explain how this repeal caused the problems we’re facing today. He just makes an empty accusation.

But consider the current environment: Bank of America and JP Morgan Chase have both commercial and investment banking arms. They’re still in relatively strong financial positions. Citigroup is another example. It’s taken a beating, but it’s still standing

Lehman was an investment bank without a commercial bank. It went bankrupt. Bear Stearns is another investment bank without a commercial bank. It needed to be bailed out.

Indymac and Countrywide were mortgage originators who had commercial banking operations but no investment arms. The first went under and the latter needed to be rescued — by BofA. In fact, it’s the commercial-investment hybrids that are coming to the rescue of the less diversified financial companies.

So why is it that the law that led to their creation is somehow the problem and not the solution? What exactly can Obama point to to support his argument?

Nothing but partisanship. It’s obvious that all his campaign did was did up a bill that was written by a McCain adviser (Phil Gramm), point to it and say, “There’s your culprit.” That’s not leadership and it’s not what America needs right now. We need real solutions to the real problems, not finger-pointing and grandstanding. We’re electing a President, not a Monday-morning quarterback.

Update: Megan McArdle wrote a great post about this and she goes into more detail. It’s worth a read.

Update: The Wall Street Journal has an article recapping the recent financial turmoil. There was one quote that caught my eye in relation to the above post:

“The market was signaling that the stand-alone investment banking model doesn’t work,” says Tad Rivelle, chief investment officer at Metropolitan West Asset Management, which manages $26 billion in fixed-income assets. “We were on the verge of putting every Wall Street firm out of business.”

This is a clear contradiction of Obama’s claim. When Americans were looking to Washington for answers and solutions to the financial chaos, Obama responded with nothing more than an erroneous partisan cheap shot. Either he doesn’t know the truth, doesn’t understand the problem; or he does and he just flat out lied in the hopes of scoring some cheap political points. Either way, it doesn’t speak well of him.

Bill Clinton: The Problem Was Real Estate Was the Only Game in Town

Maria Bartiromo interviewed President Clinton about his thoughts on the current financial turmoil. Clinton made what at first glance was an interesting point. He argued that part of the reason we’re in the current financial mess isn’t just because there was so much cheap money available, but because there was only one place for it to be profitably invested: real estate. Without any other options, he argues, investors had to get more creative about how to make a buck on the housing market.

Of course, if you think twice about this, you realize it’s the chicken and the egg scenario. Did the money fuel demand, or did the demand suck up all the money? Clinton argues that if the U.S. had a “serious energy policy” it would have created another opportunity for investment and less incentive to push the envelope in the real estate market.

Of course, this is the statement of a man who believes the government drives the economy. But investors were not going to sink money into energy if they could have made a greater profit in real estate. In other words, it’s not that investors didn’t have other choices. They just viewed real estate as their best choice and they chose to invest in it instead of energy. The real estate boom starved other sectors of capital.

Now that the boom is over, money will soon be looking for another home. Usher in the next boom-bust cycle and based on the current political environment, my money’s on it coming in the energy sector.

Democrats to Run and Hide

After blasting President Bush for his hands-off approach to the markets, Democrats have concluded that the best answer for the turmoil in the financial markets is to do nothing and simply go home.

They’re also attacking Bush and McCain for their deregulation policies. The only one I’ve seen cited is a bill they all voted for. Meanwhile, they repeatedly blocked meaningful regulatory reform of Fannie and Freddie. I’m sure it’s just a coincidence that Fannie and Freddie were stuffing their pockets with campaign cash.

During the 2006 mid-term election the Democrats promised to bring change if elected. America elected them to office and a lot sure has changed since they’ve been in control.

Can American really afford to give them total control over the government. George Will makes the case for divided government.