As 158-year-old Lehman Bros. investment bank collapsed into bankruptcy, GOP presidential candidate John McCain had the nerve to stay yesterday that the "fundamentals of the U.S. economy are strong." Really? Actually this puts him at odds with numerous economists.
He's also been quoted as saying he really doesn't understand the economy -- believable given his statement about good fundamentals yesterday. How then can a guy who admits he doesn't understand the economy make such ridiculous statements on the same day that Wall Street's excesses bring down industry giants?
Phil Gramm, one of McCain's economic advisers, must be whispering these idiotic sweet nothings to the candidate. Gramm prepared the way for this mess in 1999 with the historic Gramm-Leach-Bliley Act. This law repealed the depression-era Glass-Steagall Act, which prohibited a bank from offering investment, commercial banking, and insurance services. This is the real culprit behind our financial mess. Gramm's law freed up banks and insurance companies and investment firms to intertwine incestuously and invent absurdly complex "financial products"amounting to junk. Gramm's modernization of financial services actually facilitated greed and speculation run amok with boundaryless interlocking entities pawning off bad investments to eachother.
Remember Phil Gramm said we're in a mental recession and that Americans who are having a hard time are whiners.
Yesterday, thanks to Gramm-Leach-Bliley, Bank of American purchased Merrill Lynch. Bank of America, has benefited from Gramm-Leach-Bliley with CEO Lewis leading "a buying spree in recent years. In addition to the Countrywide purchase, Bank of America has acquired FleetBoston Financial Corp., credit card company MBNA Corp. and Chicago's LaSalle Bank. In July 2007, Bank of America paid $3.3 billion to buy private bank U.S. Trust Corp. from Charles Schwab & Co." (SanFrancisco Chronicle)
Probably, Bank of America CEO Ken Lewis isn't a whiner. He seems to be at the cutting edge of Phil Gramm's vision for the financial services sector. But even he thinks the economy is tanking. At a press conference yesterday, going over the fundamentals of the Merrill acquisition, Lewis allowed that the U.S. economy wouldn't see significant recovery until 2010, that the financial services sector would continue to spin out and that the next 12 months would be very difficult for economy generally.
Today central banks are scrambling to pump more cash into markets, you know, to keep this fundamentally sound system functioning. Today the Bank of England will inject $35.9 billion and the European Central Bank will pump in 70 billion euros (about $100 billion). But this hasn't settled down markets. This morning International Herald Tribune reports that "Wall St. woes trigger Asian markets sell off." Didn't those investors and central banks get the memo that the economy is fundamentally sound?