Feds should restore oversight of banking practices
Economists expect the national market meltdown will lead to a recession in Hawaii.
On the verge of possibly the worst financial crisis since the Great Depression, Hawaii's slumping tourism is expected by economists to spiral down further. While belts tighten in the islands and around the country, congressional action restoring regulatory oversight is desperately needed to limit the damage and eventually lift the economy to its feet.
Following the federal bailout of Bear Stearns Cos., Fannie Mae and Freddie Mac, last weekend's collapse prompted banking giants Lehman Brothers Holdings Inc. and Merrill Lynch & Co. to beg at the federal trough. They were rightly turned away, and American International Group was forced to borrow $20 billion from its own subsidiaries to avoid demise.
Four years after the 1929 stock market crash, Congress enacted banking reforms, some of which were aimed at controlling speculation. Among other things, they separated rules for commercial banks and investment banks to assure that risky investments not be put in the same institutional pot as public deposits.
Under the banner of reform and deregulation, Congress in 1999 approved a bill sponsored by then-Sen. Phil Gramm, chairman of the Senate Banking Committee, that allowed commercial and investment banks to merge. The oversight hodgepodge went unchanged, effectively disabling regulation.
Moderation was replaced by greed beyond the dotcom accounting scandals that crashed Enron, Global Crossing and WorldCom several years ago. Brokers placed questionable mortgages with homeowners unable to afford adjustable-rate loans, assuming that real estate values would soar forever. The fallout has yet to reach an end.
Sen. John McCain, the 2008 Republican presidential candidate, supported the Gramm legislation and used Gramm as his campaign co-chairman and chief economic adviser. The former Texas senator was forced to step down as McCain's adviser in July after describing the nation's economic woes as "a nation of whiners" afflicted with "mental recession."
McCain's closest adviser on Wall Street issues since then has been John Thain, chief executive of Merrill Lynch. Individuals associated with Merrill Lynch have collectively been McCain's largest contributor at $300,000.
McCain has long been a champion of less government regulation. In 1995, he supported an unsuccessful attempt to create a moratorium on all kinds of federal regulation. He maintained that excessive regulations were "destroying the American family, the American dream." He said voters "want these regulations stopped."
"I'm always for less regulation but I am aware of the view that there is a need for government oversight," he told the Wall Street Journal last March. He added, "but I am fundamentally a deregulator."
On Monday, following the news about Lehman Brothers and Merrill Lynch, McCain called for "major reform" to "replace the outdated and ineffective patchwork quilt of regulatory oversight in Washington and bring transparency and accountability to Wall Street." McCain would rather verbalize betrayal of his special interests than lose an election.