Sunday, September 21, 2008

History: McKeating to Meltdown

By contrast, the Keating Five scandal was small potatoes. A financial institution bailout costing over $3 billion in 1989.

Compared with the bailout of hundreds of billions for the current financial meltdown, it seems small potatoes. But, there are other comparisons that chill.

The Keating Five scandal.... five Senators entangled in the failure of big- time campaign contributor Charles Keating's Lincoln Savings and Loan. The five were accused of intervening with banking regulators to protect Keating.

Then-economist Alan Greenspan wrote a letter on Keating's behalf extolling the management of Lincoln Savings as "seasoned and expert" with a "record of outstanding success."

Sen. John McCain, now seeking the presidency of the United States, was one of the five.

Alan Greenspan went on to become chairman of the Federal Reserve.

In today's New York Times Frank Rich puts a fine point on this history in Truthiness Stages a Comeback.

Rich reminds us that McCain.... "has been chairman of the Senate Commerce Committee, where he claims to have overseen “every part of our economy.” He didn't, thank heavens, but he does have a long and relevant economic record that begins with the Keating Five scandal of 1989 and extends to this campaign, where his fiscal policies bear the fingerprints of Phil Gramm and Carly Fiorina. It’s not the résumé that a presidential candidate wants to advertise as America faces its worst financial crisis since the Great Depression. That’s why the main thrust of the McCain campaign has been to cover up his history of economic malpractice.

McCain has largely pulled it off so far, under the guidance of Steve Schmidt, a Karl Rove protégé. A Rovian political strategy by definition means all slime, all the time. But the more crucial Rove game plan is to envelop the entire presidential race in a thick fog of truthiness. All campaigns, Obama’s included, engage in false attacks. But McCain, Sarah Palin and their surrogates keep repeating the same lies over and over not just to smear their opponents and not just to mask their own record. Their larger aim is to construct a bogus alternative reality so relentless it can overwhelm any haphazard journalistic stabs at puncturing it.

These smear tactics are nothing new.... George Bush smeared McCain in the 2000 GOP presidential primaries, and Swiftboated John Kerry in the 2004 presidential election..... but, it was the former Republican Speaker of the House Newt Gingrich who codified such tactics in a 1996 GOPAC memo entitled Language: A Key Mechanism of Control.

Gingrich advised GOP campaigners to memorize as many of his suggested words as possible and use them. He suggested they talk about themselves with optimistic positive governing words such as... change, commitment, moral, family, vision... and use words to define Democrats such as.... abuse of power, betray, cheat, corrupt, greed, hypocrisy, traitors, welfare.... even, gasp, liberal.

And the point.... control. Over our country, over our lives.

And control the GOP did. Congress from 1994 to 2004 and the White House for the last eight years. Now they want to point the finger at everyone else for the dismal state of our economy, although there is plenty of blame to go around and the Democrats skirts aren't all clean.

The combination of Rove's bogus alternative to reality and the application of Gingrich's advice to use words as tactics has been politically successful for the GOP, and lethal for the country as the populace was manipulated and misled.

As Rich explains: "When a McCain spokesman told Politico a week ago that 'we’re not too concerned about what the media filter tries to say' about the campaign’s incessant fictions, he was channeling a famous Bush dictum of 2003: 'Somehow you just got to go over the heads of the filter.' In Bush’s case, the lies lobbed over the heads of the press were to sell the war in Iraq. That propaganda blitz, devised by a secret White House Iraq Group that included Rove, was a triumph. In mere months, Americans came to believe that Saddam Hussein had aided the 9/11 attacks and even that Iraqis were among the hijackers. A largely cowed press failed to set the record straight...

"If you doubt that the big lies are sticking, look at the latest Washington Post/ABC News poll. Half of voters now believe in the daily McCain refrain that Obama will raise their taxes. In fact, Obama proposes raising taxes only on the 1.9 percent of households that make more than $250,000 a year and cutting them for nearly everyone else."

This same media filter is being used in the current financial crisis. Why isn't the press talking about McCain's Keating past? Rich notes that the "indisputable historical antecedent for our current crisis is the Lincoln Savings and Loan scandal of the go-go 1980s. When Charles Keating’s bank went belly up because of risky, unregulated investments, it wiped out its depositors’ savings and cost taxpayers more than $3 billion. More than 1,000 other S.&L. institutions capsized nationwide.

"It was ugly for the McCains. He had received more than $100,000 in Keating campaign contributions, and both McCains had repeatedly hopped on Keating’s corporate jet. Cindy McCain and her beer-magnate father had invested nearly $360,000 in a Keating shopping center a year before her husband joined four senators in inappropriate meetings with regulators charged with S.&L. oversight.

"After Congressional hearings, McCain was reprimanded for 'poor judgment.' .... Yet he, like many deregulators in his party, was guilty of bankrupt policy-making before disaster struck. He was among the sponsors of a House resolution calling for the delay of regulations intended to deter risky investments just like those that brought down Lincoln and its ilk."

McCain as a "maverick" is just another manipulative use of a word as a tactic.

In truth, as Rich reminds us.... "The corporate jets, lobbyists and sleazes that gravitated around McCain in the Keating era have also reappeared in new incarnations. The Nation’s Web site recently unearthed a photo of the resolutely anticelebrity McCain being greeted by the con man Raffaello Follieri and his then girlfriend, the Hollywood actress Anne Hathaway, as McCain celebrated his 70th birthday on Follieri’s rented yacht in Montenegro in August 2006. It’s the perfect bookend to the old pictures
of McCain in a funny hat partying with Keating in the Bahamas."

Eric Hovde explains today in Calling Out the Culprits Who Caused the Crisis (WaPo) ...."In the run-up to the millennium, the Federal Reserve, led by then-Chairman Alan Greenspan, began to pump money into the capital markets to deal with any financial problems that might arise from a Y2K meltdown."

The meltdown didn't happen, but the "monetary stimulus, coupled with the aforementioned hype, created an unfortunate bubble in Internet, technology and telecommunications stocks."

Large Wall Street investment banks recognized the potential profit in promoting the technology boom and from mid-1999 to mid-2000 they took about 500 companies public, raising about 77 billion for the IPOs, for which they received a 6 percent underwriting fee.

In this rush for profits, the investment banks also invested in these companies before the IPO when the stock was valued at a fraction of the post IPO, and threw out their underwriting guidelines in place since the Great Depression.

Then.... the technology bubble burst and as Hovde explains, "America's corporate landscape was littered with bankruptcies and mass layoffs, and investor losses have been estimated at more than $1 trillion."

Greenspan's Federal Reserve reacted by increasing the money supply and slashing short-term interest rates to 1 percent... a level not seen for more than 45 years. This stimulus led to an enormous housing boom and new mortgage products that ignored all previous lending guidelines.

Wall Street then packaged these subprime mortgages, again receiving billions in fees, and sold them to investors.

We are now facing the disastrous result as this whole get-rich-quick scheme falls apart as the bills come due.

Hovde explains, "First, the Fed laid the groundwork for both these asset bubbles by lowering interest rates to historic lows. In an attempt to protect his legacy after the Internet-bubble collapse, Greenspan provided unprecedented stimulus to re-inflate the economy and maintain his popularity with Wall Street.... But in doing so, he spawned the largest debt and asset bubble in U.S. history."

Of course, the SEC stood idly by as Wall Street took advantage of the investing public in the Internet and housing bubbles. Treasury secretaries took no action to curb these abuses, and "Wall Street investment banking firms sprinkled some of its massive gains into the pockets of our elected officials," and bought itself protection from any tough government enforcement, Hovde explains.

And, regardless of his current fiery calls for a crackdown on Wall Street, McCain opposed the very regulations that might have helped avert the current catastrophe. In 1999, he supported a law co-authored by his campaign financial guru then-Sen. Phil Gramm "that revoked the New Deal reforms intended to prevent commercial banks, insurance companies and investment banks from mingling their businesses," Rich reminds us.

Now, Gramm is keeping a low profile after he blamed the economic meltdown on our 'nation of whiners' and 'mental recession,' but he remains in the McCain loop.

So there you have it.... greed, corruption and a gulled electorate have brought us to this catastrophic financial crisis.

But history doesn't have to be prologue to the future. We can and must change business as usual.


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