Democrats ‘foreclose’ on the moral high ground in the financial crisis

The following is a response submitted to my local paper this afternoon…

Editorial page editor Nelson Benton wrote the following this morning,

“Democrats will be seeking to take advantage of Republican presidential candidate John McCain’s deregulation fervor in the weeks ahead.”

No doubt the Democrats will try to blame McCain for this financial crisis. The question is, can they do that credibly? Furthermore, by referring to John McCain’s “deregulation fervor,” Mr. Benton is making a false assumption that needs to be corrected.

According to a Washington Post editorial published on Friday,

“In the aftermath of the Enron collapse and other accounting scandals, he (McCain) was a leader, with Sen. Carl M. Levin (D-Mich.), in pushing to require that companies treat stock options granted to employees as expenses on their balance sheets. ”I have long opposed unnecessary regulation of business activity, mindful that the heavy hand of government can discourage innovation,” he wrote in a July 2002 op-ed in the New York Times. “But in the current climate only a restoration of the system of checks and balances that once protected the American investor — and that has seriously deteriorated over the past 10 years — can restore the confidence that makes financial markets work.”

In 2003, when McCain was pushing for stronger regulation of Fannie Mae and Freddie Mac, the New York Times noted that it was the Democrats who were against the increased regulation, not Republicans. Massachusetts Democrat Barney Frank, now chair of financial services oversight in the House, was quoted as saying,

”These two entities — Fannie Mae and Freddie Mac — are not facing any kind of financial crisis. The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.”

The Post editorial on Friday went on to list other instances of McCain pushing to regulate these financial institutions, stating,

“Mr. McCain was an early voice calling for the resignation of Securities and Exchange Commission Chairman Harvey Pitt, charging that he “seems to prefer industry self-policing to necessary lawmaking. Government’s demands for corporate accountability are only credible if government executives are held accountable as well.” In 2006, he pushed for stronger regulation of Fannie Mae and Freddie Mac — while Mr. Obama was notably silent. “If Congress does not act, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system, and the economy as a whole,” Mr. McCain warned at the time.” The Post editorial concluded, “Mr. Obama’s attack does not give a fair reading of the McCain record.”

Neither did Mr. Benton’s assumptions about McCain’s “deregulation fervor.”

According to the Center for Responsive Politics, the top three U.S. Senators getting contributions from Fannie Mae and Freddie Mac were Democrats and number two was Senator Barack Obama, a pretty impressive accomplishment for a guy in the Senate for only four years. Do you think the fact that Fannie Mae CEO Jim Johnson is a big fundraiser and former head of his VP search committee had a little something to do with Obama being “notably silent”?

Let’s not forget Democratic Senators Christopher Dodd, chairman of the Banking Committee, and Kent Conrad, chairman of the Budget Committee received sweetheart mortgage deals because of their cozy relationships with Countrywide Mortgage CEO Angelo Mozillo. These “friends of Angelo” as they became known were supposed to be regulating Countrywide, not financially benefiting from them.

While on the subject of sweetheart mortgage deals, Barack Obama got one from Northern Trust. The Washington Post reported on July 2 that, “Obama Got Discount on Home Loan” and the story said,

“The freshman Democratic senator received a discount. He locked in an interest rate of 5.625 percent on the 30-year fixed-rate mortgage, below the average for such loans at the time in Chicago. The loan was unusually large, known in banker lingo as a “super super jumbo.” Obama paid no origination fee or discount points, as some consumers do to reduce their interest rates.”

There is plenty of blame to go around for the Wall Street debacle and Republicans deserve their fair share of it. Many of the accounting abuses originated and were allowed to spread like a cancer on their watch. The evidence shows that Democrats have their own problems on this issue, thwarting attempts by McCain to increase regulation while they lined their pockets with campaign contributions from Fannie and Freddie and accepted sweetheart mortgage deals from firms they were supposed to be regulating. All the lipstick in the world can’t change that.

The record shows that rather than displaying “deregulation fervor”, Sen. McCain has been out front, for years, on the issue of regulation and Wall Street. This financial crisis is the latest example of Washington, not a political party or figure, failing the American people.