Tags: Financial | Crisis | Lehman

Both Parties Share Financial Crisis Responsibility

Thursday, 18 Sep 2008 09:30 AM

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"Any party which takes credit for the rain must not be surprised if its opponents blame it for the drought."

— Dwight W. Morrow

The $85-Billion government takeover of AIG is a big honking deal. (See http://online.wsj.com/article/SB122156561931242905.html.)

The U.S. government seized control of American International Group Inc. The $85 billion deal has signaled the intensity of concerns about the danger a collapse to the financial system and sparked a myriad of questions and accusations.

This is an epic do over and marks a dramatic flip for the federal government. Originally the feds had been strongly resistant to overtures from AIG for an emergency loan or some flavor of intervention that would prevent the insurer from falling into bankruptcy.

Preceding the AIG big kiss, the government essentially pulled the plug on Lehman Brothers Holdings Inc., allowing the big investment bank to go under instead of giving it the financial support it had been seeking. This time, the government decided AIG truly was too big to fail. So much for the axiom of consequences.

When House Speaker Nancy Pelosi was asked if Democrats bear some of the responsibility regarding the current crisis on Wall Street, she had a one-word answer: “No.” Huh?!?!

OK, so she said it, but does anyone (anyone) really actually believes that? Or is it more partisan election year scat? Isn’t Barney Frank still the chairman of the Financial Services Committee?

Pelosi eviscerated President Bush’s “mismanagement” of the economy and a lack of regulation that led to the current situation. However, she says the economic crisis is not in anyway her team's fault . . . notwithstanding an abundance of empirical evidence to suggest she is flat out way wrong.

Time for Amy Poehler and Seth Meyers to do another "Oh Really!" SNL segment.

Nancy says, “I think the American people have had it with this situation where the middle-income people in our country are not protected from the ramifications of the risk-taking and the greed of these financial institutions . . .”

How about the ramifications of the risk-taking and greed of certain Congress critters?

When asked whether the Democrats “deserve some responsibility” regarding the economic crisis, Pelosi responded: “No.”

“John McCain said that this is a result of overregulation by the Democrats in Congress,” she added. “Either he doesn’t know what he's talking about or he’s misrepresenting the facts as he knows them. But it’s simply not true.”

Listen, the fact is, there is ample blame to go around for this financial disaster. Leadership 101 dictates a leader is responsible for the “welfare, discipline, and tactical deployment of his troops.” Or as President Truman said, “The buck stops here.”

Sure President Bush is culpable for what was and wasn’t done to create (and/or exacerbate) the financial chaos. However, Congress likewise shares responsibility as a co-equal branch of government. While we’re at it, the judiciary can bear a portion of the burden too.

The sad reality is, despite the partisan spin aspect, Republicans are correct to observer that Congress (led by Democrats and Pelosi) hadn’t done jack to impede or even mitigate the crisis.

Nobel laureate Milton Friedman correctly observed, "There are severe limits to the good that the government can do for the economy, but there are almost no limits to the harm it can do."

However, the Democrats failed to pass the all-of-the-above energy plan. They stubbornly refused to do jack-spit to stop earmarks and frankly they contributed largely (although not unilaterally) to the chronic gridlock. Politics is supposed to be the art of compromise and increasingly, neither political team seems inclined to either compromise or even play nice.

The Pelosi Congress failed to pass an all-of-the-above energy plan, failed to stop earmarks, and failed to break the partisan gridlock that festers in Washington.

James Russell Lowell once said, "The foolish and the dead alone never change their opinions." We can add partisan politicians to “the foolish and the dead.”

As I am constantly telling my 10-year-old son, there are consequences to everything we do . . . good thing and bad things. A direct consequence of the malfeasance of our elected officials is that the T-bill 3-month rate has dropped to the lowest since 1954 see www.bloomberg.com/apps/news?pid=20601087&sid=aCMdnmwJqCaM&refer=worldwide.

The concerns that credit market losses will widen in the wake of the bankruptcy of Lehman Brothers Holdings Inc. and the federal takeover of American International Group Inc. is palpable.

As confidence in credit markets worsens (evaporates) investors bludgeoned the rate down as low as 0.233 percent.

The oldest U.S. money-market fund, the Reserve Primary Fund, became the first in 14 years to expose investors to losses after writing off $785 million of debt issued by Lehman. That’s just a federal tad less than a billion.

As Everett Dirksen once noted, “A billion here, a billion there, and pretty soon you're talking real money.”

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