Laissez-faire leads to nationalization

By Ron Beasley

The Republicans, including until this week John McCain, are quick to extol the virtues of laissez-faire capitalism and just as quick to condemn nationalization of private companies.  Well what if laissez-faire policy forced the government to nationalize.  It looks like that is what has happened.

Fed Readies A.I.G. Loan of $85 Billion for an 80% Stake

In an extraordinary turn, the Federal Reserve was close to a deal Tuesday night to take a nearly 80 percent stake in the troubled giant insurance company, the American International Group, in exchange for an $85 billion loan, according to people briefed on the negotiations.

All of A.I.G.’s assets would be pledged to secure the loan, these people said, and in return, the Fed would receive warrants that could be exchanged for an ownership stake. Stock of existing shareholders would be diluted, but not wiped out.

I'll give you one guess on who has his fingerprints all over the A.I.G. failure.  Of course, it was none other than John McCain's good friend and economic adviser Mr Deregulation, the prince of laissez-faire, Phil Gramm.

This is not an accident -- it is a direct result of political leadership -- on both sides of the aisle. Neither the Clinton administration nor the Bush administration was interested in regulating credit derivatives. As Salon reported more than six years ago, one Clinton appointee at the Commodity Futures Trading Commission (CFTC), Brooksley Born, did attempt to bring derivatives trading under the CFTC's regulatory ambit, but she was shot down by a powerhouse of government officials, including Fed Chair Alan Greenspan, SEC head Arthur Levitt, Treasury Secretary Robert Rubin and Senate Banking Committee chairman Phil Gramm.

A bipartisan effort, no doubt about it. But nobody made it more of a sacred mission to ensure that credit derivatives were kept unregulated than Senator Gramm, long recognized as the key force in the passage of the Commodities Future Modernization Act of 2000, which specifically exempted new derivative markets from government oversight. As Mother Jones' David Corn reported earlier this year:

The act, he declared, would ensure that neither the SEC nor the Commodity Futures Trading Commission got into the business of regulating newfangled financial products called swaps -- and would thus "protect financial institutions from overregulation" and "position our financial services industries to be world leaders into the new century."

So the next time you hear John McCain rant about excesses and greed on Wall Street just remember who the big player was in making it all possible.

Update

Via Steve Soto we have this from Reuters

McCain lays out principles for Wall Street reform

Republican presidential nominee John McCain said on Tuesday he would set up a commission like the one that investigated the September 11 attacks to study what led to the current U.S. financial crisis and offer solutions.

McCain would craft Wall Street reforms based on several principles including better corporate governance, consumer protection, a "derivatives clearing house" and an effective safety and soundness regulator for every financial institution, a senior adviser to the Arizona senator said.

Of course he fails to note that his dear friend and adviser, Phil Gramm, is the one who made sure there was little or no regulation.  And then he simply lies once again.

"I warned two years ago that the situation was deteriorating and was unacceptable, and the old boy network and the corruption in Washington is directly involved," he said.

Of course there is one little problem - there is no record of McCain even talking about it much less than warning against it.  Once again McCain is just making stuff up.  And of course he and his buddy Phil are charter members of that old boy network.