National Commentary

Nicholas F. Benton: Global Financial Meltdown




It’s becoming unclear which will bring the McCain candidacy down faster or harder: the economy or Sarah Palin.

Many of us predicted long ago that by this fall, the economy would catch up to the GOP, which since the 1970s has become synonymous with an Ayn Rand philosophy of wanton free markets and deregulation, factors that are the sole reason we are now teetering on the brink of an unprecedented global financial panic and meltdown.

But Palin’s utter stonewalling of an official investigation into allegations of abuse of power as Alaska’s governor, and yesterday’s revelations about her use of private e-mail accounts to elude legal public access to government process, are, on top of everything else, adding up to a political train wreck, demolishing campaign claims to clean, honest reform.

We are looking at an utter mess, and there is no way that the blame does not fall solely at the feet of the Republican Party, very much including Sen. McCain over many years.

Perhaps even scarier than the imminent unraveling of the global economy that attended the prospect of an AIG failure were the markets’ sharply negative reaction yesterday to the $85 billion U.S. bailout. Was it just throwing good money after bad?

Last spring, the unprecedented government bailout of Bear Stearns was considered the ultimate move to shore up the wobbly banking system. Most wanted to believe it cured most underlying problems, by assuring investors the government was ready to help. Few had any idea that Bear Stearns was only the tip of the iceberg.

No one knows, or at least is saying, where it will go from here, except that Alan Greenspan stressed twice on a Sunday morning talk show last weekend that “we’re in the midst of a once in a century situation.” A master of subtlety, his phrase was likely a code for “potentially worse than the Great Depression.”

Peter Andersen of the Boston-based Congress Asset Management group said on CNBC Monday, “What we are experiencing is the great unwinding and de-leveraging of America.”

A commentator noted, “When you are knowingly leveraging one dollar to create 30, with no paperwork for any of it, it’s going to catch up to you, and all come tumbling down.” By that measure, 29/30ths of the world’s financial paper may go, “Poof!”

Former Clinton Treasury Secretary Robert Reich, on CNN yesterday, had it right when he said the root of the current crisis is not the sub-prime mortgage mess.

It is the Ayn Rand philosophy of no regulation in government, which the current administration has allowed to run amok. The same philosophy denuded the Food and Drug Administration, such that tainted foreign products began getting into the U.S., the Federal Aviation Administration, such that United Airlines and others suddenly had to pull their fleets out of the air to avoid safety problems, the Federal Emergency Management Agency, such that it failed to response adequately to Katrina and other weather crises, and the Securities and Exchange Commission, which looked the other way as what Reich called “more and more exotic financial instruments” of “derivatives on derivatives” created paper values that had no remote connection to actual value.

The emergence of the sub-prime mortgage crisis pricked the bubble. When it hit, some started to ask what the true basis of the value of their paper was. That was when, Reich said, with apologies for mixed metaphors, it became evident suddenly that “the emperor had no clothes.”

So McCain has a long, long record of support for both philosophical and practical deregulation that allowed the preconditions for the current meltdown to swell. So, he now insists that “the fundamentals of the economy remain sound.” On the other side, Barack Obama charges the crisis is “the final verdict on an economic policy that has failed.”

For those whose life savings have not yet been liquidated, Andersen says it’s best now to “stay on the sidelines,” even while some thuggish advisors continue questioning the manhood of people who “don’t have the stomach” for risk. Meanwhile, the only real argument against hiding cash in your mattress is that chance that your house may catch on fire. But there’s far more value going up in smoke in the global marketplace now than might ever happen at home.

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