Obama, McCain play Economic Blame Game

Washington Matters

Obama, McCain play Economic Blame Game

In the nation's current financial mess there is no shortage of blame to go around. But both Barack Obama and John McCain are using the economy as just another chance to take a swing at their opponent. The campaign rhetoric makes both candidates look clueless about how we got here and does not inspire confidence that they know how to get us out.


Obama points his finger at the deregulatory environment fostered by Republicans, especially harping on the 1999 repeal peal of the Depression era Glass-Steagall Act. Never mind the fact that most Democrats supported the legislation, which broke the barrier separating investment banks from depository institutions -- or that it was signed into law by President Bill Clinton, who still believes repeal was the right thing to do and had little bearing on the crisis.

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Not only did it make no difference in creating this year's banking woes, it also has helped to soften the blows of the financial fiasco. Many of the places that popularized risky, complex securities based on mortgages were actually stand-alone investment banks like Bear Stearns and Lehman Brothers. Repealing Glass-Steagall paved the way for Bank of America to buy Merrill Lynch. It allowed stand-alone investment banks such as Goldman Sachs and Morgan Stanley to transform into deposit taking institutions so that they could avoid the fate of their former rivals.


It's true that regulators did not keep up with new financial products tied to mortgage securities compounding market meltdowns, but both parties shoulder the blame for ignoring those developments..


McCain, meanwhile, has concentrated his anger over the government sponsored enterprises Freddie Mac and Fannie Mae for encouraging homeownership with risky investments. In recent years Republicans have tried to curb some of that lending, but found fierce resistance among Congressional Democrats. Still legislators on both sides of the aisle got a total of $4.8 million in campaign donations from the agencies over the past decade. 


Plus blaming Freddie and Fannie solely for shaky lending practices is missing the point entirely. The agencies certainly contributed their fair share to the problems. They got caught up in the business of selling and repackaging mortgage debt into complex securities in order to keep up with the high flying share prices of other banks. In the end they added fuel to the fire, but did not cause it.


Many on Wall Street have called both candidates take on the economy disappointing. While it is true that Obama and McCain are busy trying to win the election, we shouldn't lose sight of the fact that the economic situation that one of them will inherit grows increasingly desperate for real leadership, not politicking.