Econ 101 - Understand the Problem

On Tuesday, McCain said, referring to a 2006 Republican-led regulatory overhaul proposal, “Two years ago, I warned the administration and the Congress that Fannie Mae and Freddie Mac needed to be fixed. It turns out, the problem was even bigger. They waited too long, and now we have a housing crisis, three bailouts with taxpayers’ money, and a financial crisis.” But does he get it?

His comments refer to a Congressional effort to respond to accounting scandals at government-sponsored enterprises Fannie Mae and Freddie Mac earlier in the decade. And, while these internal problems needed to be addressed, they had little or nothing to do with the current credit crisis. That has far more to do with Congress' 1999-2000 deregulation of the complex financial products coming out of the investment banking industry, e.g. credit default swaps -- essentially just highly leveraged bets on whether loans would default or not. It's not just that he lacks a good plan, McCain's remarks are just completely off the mark!

I know John McCain's not an economist, but this issue is quickly becoming the most important one we have to deal with. More critical, even, than health care, in my opinion. So having good advisors and becoming knowledgeable on the issue should be critical. And when I think of his having Phil Gramm as economic advisor, Phil Gramm who sponsored the very 1999-2000 deregulation that led to the current meltdown... well, that really worries me. Because after the last 8 years, we all know just how important advisors can be.