Roberts on Wall Street: Bush Loosed Greed onto Imprudence

Update II: 'Fear' Index at All-time Intraday High
Update: Five percent down and dropping

Paul Craig Roberts ought to be required reading for all policy makers during this apparently long period of multiple crises.

Holding the Clinton and the George W. Bush administrations accountable for the financial crises currently (as in right this second) shaking the world, Paul Craig Roberts points to three extraordinary culprits:

- The repeal of the repeal of the Glass-Steagall Act [known as the Financial Services Modernization Act of 1999], repealing the separation of commercial from investment banking, that was signed into law during the Democratic Clinton Administration in 1999

- The exclusion of derivatives and credit default swaps from regulation in 2000

- And most importantly:

The greatest mistake was made in 2004, the year that Reagan died. That year the current Secretary of the Treasury, Henry M. Paulson Jr, was head of the investment bank Goldman Sachs. In the spring of 2004, the investment banks, led by Paulson, met with the Securities and Exchange Commission. At this meeting with the New Deal regulatory agency tasked with regulating the US financial system, Paulson convinced the SEC Commissioners to exempt the investment banks from maintaining reserves to cover losses on investments. The exemption granted by the SEC allowed the investment banks to leverage financial instruments beyond any bounds of prudence.
In place of time-proven standards of prudence, computer models engineered by hot shots determined acceptable risk. As one result Bear Stearns, for example, pushed its leverage ratio to 33 to 1. For every one dollar in equity, the investment bank had $33 of debt!

Why did anti-regulation champ McCain miss repeal of Glass-Steagall vote

"An Act to enhance competition in the financial services industry by providing a prudential framework for the affiliation of banks, securities firms, and other financial service providers, and for other purposes," reads the U.S. Senate description of the historic 1999 repeal of the Glass-Steagall Act.

The repeal is known as the Financial Services Modernization Act of 1999, and is one culprit in the financial melt-down on Wall Street.

The anti-regulation champion John McCain was the sole Senator not voting on the bill (Conference Report) that passed 90-8-1-1.

McCain was still smarting from his associations with the Keating Five 10 years earlier when that vote was held.

As McCain deals with the fall-out from revelations that his campaign manager, Rick Davis, received payments exceeding $2 million from Freddie Mac up until last month, it would be nice to hear a fresh recollection from McCain of why he missed the Glass-Steagall Act vote.

Is the answer that McCain was so deep into the pockets of the Financial Services industry that he was afraid to be too closely associated with this key piece of legislation, even as McCain had attached his name on the reformist McCain–Feingold Act, filibustered for the third time in 1999?