Barack Obama has rightly pointed out over the last couple of days that injecting Presidential politics into delicate negotiations over the current financial crisis is not the way to go. If the course of yesterday's events is any indication, the Senator from Illinois was spot-on. The two Presidential candidates would serve the American people far better, according to Sen. Obama, if they debated these and other issues openly in the Presidential debate scheduled for tonight.

Sen. Obama seems to know when it's the right time to talk. I, for one, really appreciate that kind of sound reasoning, and good judgment, in a leader.

John McCain went to Washington yesterday to help solve the country's current financial crisis. What did he do instead? Basically nothing. By all accounts, he didn't state support for any plan or position, even when asked by members of both parties point blank.

Note to Mr. McCain: you sure as heck can't show leadership if you won't even speak up. If this is the kind of help you came to offer Washington, you may as well go back to Arizona and chat up your buddy Phil Gramm about the good ol' days.

The following article, from the Daily Kos web site, is one of the best-written I have seen on the current financial crisis. John McCain, his economic advisers and his party's policies are all smack in the middle of it. Read it and weep, folks -- or get angry instead, and vote for REAL change come November.

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James Bond's wealthy nemesis may have had an obsession with gold, but he judged, quite correctly, that if people keep putting your plans awry, that was likely their intent.

In 1982, the same year John McCain entered the Senate, a bill was put forward that would substantially deregulate the Savings and Loan industry. The Garn-St. Germain Depository Institutions Act was an initiative of the Reagan administration, and was largely authored by lobbyists for the S&L industry -- including John McCain's warm-up speaker at the convention, Fred Thompson. The official description of the bill was "An act to revitalize the housing industry by strengthening the financial stability of home mortgage lending institutions and ensuring the availability of home mortgage loans." Considering where things stand in 2008, that may sound dubious. It should.

Seven years later, the S&L industry was collapsing. What was the cause? Garn-St. Germain handed the S&Ls a greatly expanded range of capabilities, allowing them to go head to head with full service banks, but it didn't give them the bank's regulations. Left to operate in an anarchistic gray area, S&Ls chased profits, indulged in amazing extravagances, and cranked out enough cheap mortgages to fuel a real estate boom. They also experimented with lots of complex, creative -- and risky -- investments, even though they didn't have the economic models to really determine the worth of the things they were buying. The result was a mountain of bad debts and worthless "assets." Does any of that sound eerily (or nauseatingly) familiar?

It wasn't a foregone conclusion. In 1985, three years after the deregulation of the S&Ls, the chairman of the Federal Home Loan Bank Board saw that the situation was already looking shaky, with the potential to become much worse. He instituted a rule to limit the amounts and types of investments S&Ls could carry on their books in an effort to head off disaster. However, many savings and loans -- among them Lincoln Savings & Loan Association of Irvine, CA, which was headed by a fellow named Charles Keating -- promptly ignored these rules.

Now enters a familiar cast of characters. First to pop up was the universally beloved Fed-chief-to-be, Alan Greenspan. Greenspan argued against the loan board's new rules, and persuaded Reagan to appoint one of Keating's pals to the board to blunt the requirements. A quintet of senators, among them John McCain, began having meetings with both the management at Lincoln and the regulators at the loan board. ] Alan Greenspan also helped out with a letter to the regulators, asking that Lincoln be exempt from the new rules. With their help of Greenspan and their pet senators, Lincoln was able to stay in business an additional two years, at the end of which they failed -- taking the life savings of 21,000, mostly elderly, investors with them.

How involved was John McCain? McCain and Keating had known each other since 1981 and had become fast friends. Of all the "Keating Five," it was McCain who moved into the life of the Lincoln S&L chief. The two men vacationed together multiple times, with the whole McCain clan (babysitter included) heading out for Keating's private Caribbean property on Keating's private jet. McCain didn't think to actually report these trips, or pay for them, until the investigators were breathing down his neck. And McCain took his payment in the form of more than just vacations. Keating and other members of Lincoln's parent company padded McCain's pockets with $112,000 in campaign contributions.

In John McCain's biography, he called his meetings with Keating and regulators "the worst mistake of my life," though from the text you'd think this was a spur of the moment decision, not something that McCain did repeatedly over a space of years. Still, you might think that a "worst mistake" would stay fresh in his memory.

It certainly didn't fade quickly for the country. Following the S&L crisis, the Resolution Trust Company was formed to swallow up the debt of Lincoln and 746 other S&Ls gone wild, and taxpayers were left with the $125 billion bill. The resulting budget deficit forced cutbacks in other programs. The artificial real estate boom collapsed and housing starts fell to their lowest levels in decades. Finally, the whole nation settled in for a period nasty enough that three years later someone could still campaign around the idea "It's the economy, stupid."

Even so, by 1999 Phil Gramm -- who had entered the Senate two years after McCain and quickly become the economic guru of the Keating Five maverick -- put forward the Gramm-Leach-Bliley Act. This Act passed out of the Senate on a party line vote with 100% Republican support, including that of John McCain. (To be fair, the bill eventually passed again with a wide margin following revisions in the House.)

This act repealed part of the Glass-Steagall Act. This may sound like a bunch of Congressperson soup, but the gist of it is that Glass-Steagall was put in place in 1933 to control the rampant speculation that had helped cause the collapse of banking at the outset of the depression, and to prevent such consolidation of the banks that the nation had all its eggs in one fiscal basket.

Gramm-Leach-Bliley reversed those rules, allowing not only more bank mergers, but for banks to become directly involved in the stock market, bonds, and insurance. Remember the bit about how S&Ls failed because they didn't have the regulations that protected banks? After Gramm-Leach-Bliley, banksdidn't have that protection either.

Gramm wasn't done. The next year he was back with the Commodity Futures Modernization Act, which was slipped into a "must pass" spending bill on the last day of the 106th Congress. This Act greatly expanded the scope of futures trading, created new vehicles for speculation, and sheltered several investments from regulation.

As with both Gramm-Leach-Bliley and Garn-St. Germain, large parts of this bill were written by industry lobbyists. This famously included the "Enron Loophole" that exempted energy trading from regulation and was written by (big suprise) Enron Lobbyists working with Gramm. Not coincidentally, Senator Gramm, the second largest recipient of campaign contributions from Enron, was also key to legislating the deregulation of California's energy commodity trading.

Thanks to this fortunate trifecta of Gramm-crafted legislation, Enron was able to create "EnronOnline" and trade electricity in California with absolutely no oversight or transparency. They quickly worked out how to game the system. Previously, there had been only one Stage 3 rolling blackout in the history of California. Within months, the system had been manipulated by traders to generate 38 such blackouts and wholesale electrical prices had gone up more than 3000%. Despite production capacity equal to four times the demand during winter, energy traders even engineered a blackout in mid-January.

During the confusion of these deliberate "shortages" and "price spikes," the California administration of Gray Davis -- blind to speculator manipulations because of the walls erected by Gramm's legislation -- was forced to sign energy contracts at enormous rates. There was little choice, because most of California's public utilities were on the brink of bankruptcy from the rising wholesale prices.

In a single year, Gramm's legislation allowed speculators to bring the state to its knees. Enron alone looted California of $11 billion. The manipulations of the energy market were also a major factor in Davis getting the hook, helped usher the governator into power, and they still have repercussions in California's budget battles today. By the end of that year, the depth of Enron's deception could no longer be hidden, and the whole company came crashing down in the largest bankruptcy in history -- at the time. This brought more billions lost in mutual funds and pension funds across the country, and played a major role in the economic downturn of 2001.

But that was only the second act. The combination of Gramm-Leach-Bliley and the Commodity Futures Modernization Act was a toxic cocktail whose total damage was greater than the sum of its parts.

The first Act promoted bank buyouts and mergers that reached such an insane pitch that the average consumer could only keep up by tracking the changing names on their checks and credit cards. Mercantile buys Ameribanc and Mark Twain. Firstar buys Federated and First Colonial. US Bancorp buys Mercantile and Firstar. And, because it allowed brokerages and insurance companies to mingle with banks, the Act cemented a trend that was already (and illegally) underway in which all those terms had become rather quaint. Is Wachovia a savings bank, an investment bank, a brokerage, or an insurance provider? The answer is "yes."

In allowing financial institutions to grow to Godzilla-sized proportions, Gramm-Leach-Bliley helped ensure that we would have financial entities that were "too big to fail." Rather than choosing to enforce rules that kept these institutions apart, the deregulators chose to create monster bankeragasurances whose downfall (and existence) was enough to threaten the whole system.

But if Gramm-Leach-Bliley removed the limits on size and scope, these new institutions still neededfuel. With many financial transactions operating on razor thin margins, and increasing automation sapping the profits from trading of all sorts, they needed a new way to generate the funds required to swallow their brethren in the merged fiscal corporation pond. For that, the Commodity Futures Modernization Act was a godsend.

Among those instruments which the CFMA sheltered from regulatory scrutiny was something called the "credit default swap." A kind of insurance one bank could exchange with another, credit default swaps supposedly made it safe for banks to take on ever riskier forms of debt. The Act didn't invent these swaps, though they were relatively new. Instead, by placing them in a state where they were not only unregulated but almost perfectly opaque, credit default swaps were turned into the perfect vehicle to fuel a Wall Street revolution. No one had any idea what these things were actually worth, they were traded "over the counter" without being administered by any exchange, and even the SEC could monitor their existence only indirectly.

Who would cheer for a new kind of financial instrument that was difficult to understand, invisible to regulators, and impossible for even the whizziest of Wall Street whiz kids to value? Guess.

More recently, instruments that are more complex and less transparent--such as credit default swaps, collateralized debt obligations, and credit-linked notes--have been developed and their use has grown very rapidly in recent years. The result? Improved credit-risk management together with more and better risk-management tools appear to have significantly reduced loan concentrations in telecommunications and, indeed, other areas and the associated stress on banks and other financial institutions.
--Alan Greenspan, 2002

Get that? Greenspan loved credit default swaps. He opined again and again that such instruments would be the salvation of the industry by spreading around risks. To the mighty Greenspan, both their complexity and their lack of transparency were good things, since swaps would only be handled by the big boys who knew how to play with fire.

When questioned about his support of Gramm's legislation, John McCain called his friend (and by then, campaign co-chair) Gramm "one of the smartest people in the world on the economy" and pointed out that Greenspan also favored the acts Gramm and his coalition of lobbyists had authored. If both Gramm and Greenspan were on his side, McCain couldn't possibly be in the wrong.

Except, of course, that he could.

From the beginning, there were plenty of people in the financial community whose opinion of these unregulated credit swaps was not as rosy as that of Gramm, Greenspan, and McCain. Chief among those speaking in opposition was SEC Chairman, Arthur Levitt. Levitt argued that what the industry needed was more transparency, especially when it came to complex instruments like default swaps, and he testified to this before Gramm's Senate Banking Committee.

"In my judgment, the risk of this regulatory approach is simply unacceptable for America's investors."
--Arthur Levitt, 1999

Gramm paid no attention.

Credit default swaps did allow the banks to share risks. So much so, that banks raced each other in an effort to find more risks. They made it possible for the down payment on homes to become 3%, 1%,0%. Skip the credit check, avoid the employment requirements, damn the torpedoes, full speed ahead! We've got a credit default swap, we can do anything!

The encouragement and "safety" that credit default swaps provided made the sub-prime mortgage market possible. Just as with the deregulation of S&Ls in the 1980s, the market was suddenly flooded with easy credit. The result was a real estate boom, soaring home prices, and a plague of "Flip that House!" shows on cable.

As the banks piled up crappy mortgages, they heaped on ever more of the credit default swaps -- and they still had no idea how to value the things. Worse, they began to trade the swaps themselves as if they were an investment, treating them like something worth holding instead of a big bundle of cartoon bombs whose fuses were already lit. Since very few loans were falling into default at the time, owning a default swap seemed like a way to collect fees without ever paying out. Banks wanted more, and more, and more.

A secondary market for trading swaps exploded into existence, and swaps were traded with absolutely no consideration for the nature or quality of the underlying investment. Swaps changed hands a dozen or more times, growing in "value" as they went. Worse still, no one regulated who could buy a swap, so it was (and is) perfectly possible for a company to acquire swaps that theoretically cover billions of dollars in loans, even if that company doesn't have a red cent on hand to cover those swaps should the loans default.

How big did this market become? Here's business correspondent Bob Moon and host Kai Ryssdal on American Public Media's Marketplace from back in the spring.

BOB MOON: OK, I'm about to unload some numbers on you here, so I'll speak slowly so you can follow this.

The value of the entire U.S. Treasuries market: $4.5 trillion.

The value of the entire mortgage market: $7 trillion.

The size of the U.S. stock market: $22 trillion.

OK, you ready?

The size of the credit default swap market last year: $45 trillion.

KAI RYSSDAL: That's a lot of money, Bob.

As in three times the whole US gross domestic product, Bob. And the truth is that Moon probably underestimated. The unregulated and poorly reported credit default swaps may have actually passed $70 trillion last year, or about $5 trillion more than the GDP of the entire world.

So, are you starting to get an idea of just how big a genie Phil Gramm and his pals unleashed?

With some regularity over the last eight years, fiscal whistle blowers have tried to raise their hands and register a protest. Um, sirs? Is it altogether a good idea to run up debts exceeding all the assets it's even possible to hold? But so long as no one actually had to pay off on the swaps, the party went on. Even usually conservative (in the fiscal sense) companies like AIG started to worry that they were being left behind and leapt headlong into the swap pool.

Shortly after Greenspan's departure in 2006, the Federal Reserve took the unusual step of issued a joint statement along with the SEC to warn about the risks associated with credit default swaps. But by that point, the damage was already severe. If swaps lost their value, most of those who had played the game would find their giant firms abruptly valued in pocket change. The only solution was to cover the problem with still more swaps and keep moving.

Then a funny thing happened. After years in which banks had handed out loans willy-nilly, guarded by the indestructible swap, people and companies started to really default on those loans. Credit slowed, home prices fell, and the whole snake started to eat itself tail first. Suddenly, credit default swaps were not sources of limitless cash. It turns out that an insurance policy -- even a secret, unregulated policy -- is occasionally expected to pay. Speculators started to look at the paper they were holding and for the first time realized it could all be worthless. Worse, it could (and did) represent a massive debt; one that no one had the funds to cover.

When Bear Stearns fell apart last March, it was only suspected that a big part of the effort in saving the giant investment bank was keeping their holdings in credit default swaps from unraveling and spreading to other institutions. Naturally, part of solving this problem involved creating a new credit default swap to cover Bear Stearn's potential debt. But the all-purpose swap was starting to lose its power. Shortly after Bear Stearns went belly up, AIG reported the largest quarterly loss in the company's history, taking a $11 billion hit on revaluing its holdings of swaps. The party was definitely coming to a close.

When AIG finally collapsed this week, there was no doubt about the primary cause of its failure. The previously well grounded company had "gotten itself involved with something called credit default swaps." Point of irony alert: Arthur Levitt now serves on the AIG board... or at least he did until the government had to take over most of AIG to salvage the company from the very idiocy Levitt had warned of in 1999.

This week, the Bush administration announced the beginnings of a plan to salvage what remains of the financial markets. At first glance, it appears that the plan will consist mainly of creating a kind of "garbage pit," a fund or group of funds -- cousins of the Resolution Trust that was created during the S&L crisis -- into which those people who have dabbled in bad debts can toss their problems. Only this time the cost to the taxpayers is at least $700 billion... and a big bite out of representative democracy.

The expansion of unregulated Savings and Loans in the 1980s brought on the collapse of that industry, a crippling of the economy, and left taxpayers holding the bag. Maybe that was only happenstance. Those pushing for the Garn-St. Germain Depository Institutions Act may not have known what they were doing.

The deregulation of the California electricity market, along with the protections provided to Enron through Phil Gramm's lobbyist-written legislation brought blackouts, fiscal and political chaos, and left taxpayers holding the bag. But the people who engineered that event -- people like Gramm and Greenspan -- had already seen what happened with the S&Ls. They should have known better. Still, perhaps that was only coincidence.

The sub-prime mortgage crisis that has not only come so close to utterly destroying the markets, but has ruined the value of many people's homes and left millions with mortgages they can't pay, was also the outcome of the deregulation created by these men. The very predictable outcome. When taxpayers are left holding the bag for $1 trillion this time around, it's hard to believe it's any sort of accident.

This is enemy action. This is a bullet deliberately fired into the economy by men willing to exercise their ideology regardless of the cost to taxpayers. Men who have every expectation that they can plunder the system again and again, while the public picks up the tab. John McCain may not have had his finger directly on the trigger, but he was there. He assisted. These were his personal friends and philosophical comrades. He may not be the high priest, but he has been a loyal acolyte in the cult of deregulation.

It may come as a surprise to the champions of deregulation, but nobody likes regulation. The restrictions that were placed on banks, S&Ls, and other institutions in the 1930s weren't put there because someone thought it would be fun. They were put in place because they addressed problems that had just been clearly and painfully revealed. They were put in place because they were necessary.

It's bad enough if John McCain didn't know that. It's far worse if he did.

Looks like John McCain is backing out of the first presidential debate (or maybe all of them). He says he's urgently needed in Washington to solve the current financial crisis. No matter that he hadn't talked to any of the folks in Congress working on a bailout plan until YESTERDAY, he's still needed in the capital right now and has called in his white horse for transport. Last we heard, he was somewhere in New York this morning -- maybe the horse has a gimpy leg. It also looks like Congressional leaders have already hammered out the details of an agreement -- doggone it, John McCain missed out?

You can call this latest McCain stunt a lot of things: showmanship, grandstanding, one-upmanship, razzle-dazzle, a Hail Mary pass. What I call it is a game of chicken. McCain is plain and simple trying to back out of a debate, or compress the debate schedule so as to eliminate the VICE PRESIDENTIAL debate. He wasn't needed in Washington to solve this financial crisis any more than I was. What he did, folks, was take a cold, hard look at his poll numbers and the polling data behind them and decided that a debate was the last place he wanted to be. He tried to get Barack Obama to take the bait and agree to this gambit but the Senator from Illinois held firm, letting him know that he could do "more than one thing at once."

McCain is waiting to see if Obama blinks. I'm guessing Obama will stare him down and show up at the debate by himself if need be. Why not? The almost 20% of Americans who are still undecided in this election cycle want to hear from the candidates themselves. If Obama is the only one who wants to tell the people what he believes and is willing to answer the hard questions that go along with taking a position on an issue (no more teleprompter scripts, please, Senator McCain!), so be it.

Things must really be shifting in the political world when consistently-conservative columnist George F. Will is taking John McCain to task. Will states that McCain is quick to demand the head of SEC Chairman Christopher Cox and make him a scapegoat for the Wall Street crisis while failing to offer any real solutions to the problems at hand. This lack of substance, Will says, is likely a lack of aptitude -- in other words, John McCain doesn't get it so what else can he say?

You've gotta love George F. Will comparing John McCain to Alice in Wonderland's Queen of Hearts in one of her "off with his head!" moments. This type of operatic behavior is well suited to fairy tales, kids, not the leader of the free world.

Thank goodness the political conversation has shifted from lipstick and bridges (to nowhere) to Wall Street and the economy. With the economy being the number one issue on Americans' minds and Wall Street in full meltdown mode, the candidates have once again focused their energies where it belongs -- on protecting the pocketbooks of all Americans, not just the greedy few.

It's often said that you can judge a person by the company they keep. Last week, as pointed out by Albert Hunt in a piece for Bloomberg News, Obama sought the counsel of former Federal Reserve Chairman Paul Volcker and former Treasury Secretaries Robert Rubin and Larry Summers. McCain, on the other hand, phoned Martin Feldstein (a Reagan-era economist), a little-known Stanford professor named John Taylor and Carly Fiorina, the former exec booted out by Hewlett-Packard and most recently a McCain economic adviser, until she famously remarked last week that neither McCain nor Sarah Palin had the chops to run a corporation.

I'm sure FDR didn't talk to ninnies during the Great Depression and it looks like Obama has a top-flight crew on board to help him navigate these most treacherous waters. That should give us all confidence -- and earn Sen. Obama our vote.

San Franciscans supporting Barack Obama are on the phone in big numbers, calling voters in swing states and talking issues. Here are some details on their effort and their plea for more volunteers from volunteer Niko:

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ARE YOU A MAMA WHO SUPPORTS OBAMA? WE NEED YOUR HELP!

Come Phone Bank WITH OTHER MAMAS.

We want a better world for our children and we can help make it happen.
MAMA: Bring your mamas group and your babies to the SF Obama Offices
once a week and help phone bank. A few mamas can phone bank while other
mamas play with the babies. Bring some toys and snacks and make yourself
comfortable!(Or feel free to just come alone when you have a spare hour as well!)
Your babies will thank you for being a part of this campaign!

The greatest need for the San Francisco Obama Campaign is phone banking.
To win this election, we need to make 2,500 calls every weekday and
10,000 calls every weekend day in the San Francisco Obama offices.

We are seeking people who can phone bank at the SF Obama offices for a 2-3
hour shift once a week. Dads, Uncles, Friends, Cousins – everyone welcome!!
To sign up for a weekly slot, contact obamasf2008@gmail.com or 415-828-0504.

While John McCain spent much of this week huffing and puffing about Wall Street, Barack Obama took the time to outline a concrete economic plan to the American people. Here it is, in a two-minute video straight from the candidate's mouth.

In the midst of the current financial crisis on Wall Street, John McCain has said that if he were President, he would fire the Chairman of the SEC (Securities and Exchange Commission). That's like putting a band-aid on Wall Street. The problem here isn't Republican SEC Chairman Christopher Cox, a Bush appointee, it's the lack of regulation on Wall Street firms. Under a Republican-led congress, rules on financial transactions among large firms have only gotten looser, to the point where unsecured and irresponsible trading that runs into the billions of dollars DAILY dominates the financial landscape.

John McCain's suggestion that the SEC Chairman be fired is nothing more than grandstanding. What we need right now is responsible leadership, the kind that offers solutions from Wall Street to Main Street. John McCain is not showing that kind of leadership. But then again, when you have about as many Wall Street lobbyists on your campaign team as you do houses (7? 10? is anyone still counting?), it's probably safer to be vague.

John McCain likes to start his speeches with "My friends..." It's folksy, it's got charm and, for a minute, it might even have you thinking that John McCain IS your friend, someone who understands your pain and knows how to help.

Well, here's what I'd like to tell my friend John McCain:

1. We need tax cuts for middle-class Americans, not tax cuts for the wealthy and large corporations;
2. We need to cut our dependence on foreign oil and fossil fuels as soon as possible so that a) gas prices won't be at the whim of OPEC and b) we might actually be able to save the planet.
3. We need pay equity among men and women.
4. We need to end the war in Iraq and redeploy the $10 billion a month we're spending over there over HERE so that we can rebuild our country's infrastructure.
5. We need to retrain workers who have lost their jobs in struggling industries.
6. We need to support unions and farmers.
7. We need universal health care so that catastrophic illness won't destroy families.
8. We need tighter regulations in the financial sector so that Wall Street bankers won't treat mortgage money like monopoly money.
9. We need alternative energy to be the NORM, not the alternative.
10. We need a leader who understands the economy.

Looks to me like my friend in November is gonna be Barack Obama.