Online at: http://politicalaffairs.net/article/articleview/7425/

Economic Meltdown: John McCain and the "Old Boy's Network"

By Joel Wendland
Archives - Dates and Topics 2008 – online September 1- 30, 2008 click here for related stories: economy

9-19-08, 9:38 am


The labor movement sharply criticized the Bush administration's and John McCain's responses to the failure of two major US financial institutions this week. In a statement for the press, Sept. 17th, AFL-CIO President John Sweeney charged George W. Bush with rushing to come to the aid of Wall Street, while ignoring the ongoing crisis that working families face.

Lehman Brothers failed to open its doors early this week after it became clear that it could not cover its nearly $1 trillion debt.

American International Group Inc. (AIG), a large insurance and banking institution, also prepared to fail until a Federal Reserve bailout package totaling nearly $85 billion kept it open. According to the details of the agreement, the US government will have a controlling interest of close to 80 percent and power to fire senior management.

A third major bank, Merrill Lynch, avoided failure only after a hasty buyout deal with Bank of America. These major financial calamities caused the US stock markets and others around the world to crash, erasing hundreds of billions in value.

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Two of the largest Wall Street firms, Goldman Sachs and Morgan Stanley, remain in jeopardy as some estimates put their debt at higher than Lehman Brothers.

According to some media accounts, the US government's seizure of AIG relied on congressionally mandated authority adopted after the collapse of the US economy before the Great Depression.

The cost of the AIG bailout alone is four times the amount of an economic stimulus package for working families, which Republicans are now blocking in Congress.

By all accounts, the collapse of these major banks, along with Bear Stearns earlier this year, resulted from holding bad mortgage-backed securities, which failed as the housing market crashed. Further, the lack of regulatory oversight by federal authorities to halt faulty loans and an endless chain of selling faulty mortgage-backed securities throughout the global market contributed to the crash.

Many Republican officials criticized the nationalization move, arguing that free markets and more deregulation are the proper solution.

Labor criticized the Bush administration for moving only to shore up Wall Street and to socialize the costs of saving banks who had made poor business decisions, while ignoring the plight of middle-class Americans.

Through its affiliate Working America as well as its regular e-mail list of members and supporters, the AFL-CIO sent out an e-action item called "Fix the Real Economy Now." The e-mail asked supporters to demand of Congress a moratorium on home foreclosures, expanded unemployment benefits, fiscal relief for states and more funding for anti-poverty programs, along with new investments in infrastructure development.

"What about ordinary Americans who are already hurting and going to hurt more?", Sweeney wondered. "With record joblessness, health care in crisis, crumbling infrastructure and lost homes, we must be every bit as determined to not allow Main Street to fail as we are to save Wall Street and our foreign central bank creditors."

Their make-shift response to the collapsing financial market showed the flaws in the Republican Party's approach to the market, Sweeney contended. "The Republicans have no economic strategy; they’re scrambling to put out fires their policies created and doing so with taxpayer money."

For his part, Republican presidential candidate John McCain emphasized his belief in deregulation and strongly criticized government intervention – until this week when he dramatically switched his position and called for a commission to find out what happened in the financial markets. Even still, McCain repeated to a Jacksonville, Florida audience this week that he thinks the "fundamentals of the economy are strong."

At a campaign stop in Nevada this week, Barack Obama chastised McCain for his refusal to take the economic crisis seriously and for his support for the economic policies that caused the financial meltdown. Obama said that the causes of the financial crisis are linked to the problems with Washington, which John McCain represents: "CEO's got greedy and Washington lobbyists got their way."

Obama ridiculed McCain's claim that he would take on special interests, or as McCain himself put it, "the old boy's network." Obama replied, "In the McCain campaign that's called a staff meeting." By some estimates, 177 lobbyists work for the McCain campaign in some capacity.

Subsequently, Barack Obama released a campaign memo to the media this week outlining several key reforms needed to stabilize the markets. He called for an economic stimulus package for working families, including direct investment in rebuilding the country's infrastructure and creating new jobs quickly.

He also called for several reforms targeting the housing crisis. He wants legislation passed that would assist homeowners re-negotiate their defaulting loans in order to stay in their homes – a measure that John McCain has opposed.

Mortgage-lending reforms, the Obama campaign added, should ensure home loans are clarified for buyers and made secure for lenders, as well as cracking down on predatory lenders. Bankruptcy reforms would help people in debt adjust the terms of their debt in order to avoid losing their homes.

In the markets themselves, Obama called for modernizing and streamlining the regulatory agencies, first, and then imposing oversight over markets where speculation and market manipulation – the causes of much of the current collapse – are taking place.

In assessing Obama's plan, the AFL-CIO's Sweeney emphasized, "We need transparency and effective regulation of Wall Street. If we’re going to bail them out, at least we must hold them accountable."

Sweeney added, however, relief for working families must come now as "Americans can't wait until November."


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