NPR: Looking for McCain’s Achilles Heel(s)?

An interesting primer on the credit crisis on NPR’s "Fresh Air" places the bulk of the blame on the existence of over-the-counter (off exchange) derivatives. The subject of the interview, Michael Greenberger, claims that failure to regulate OTC derivatives was caused by the introduction and passage of the Commodity Futures Modernization Act rider by Senator Phil Gramm in December 2000. He then claims that "we’ve been embarking on financial fiascos ever since." The implicit argument is that there were few or no financial fiascos prior to this Act, which anyone who: (1) was alive in 1998, 1997, 1994, 1992, 1987, 1985, 1982, 1980, 1977, 1974, etc. or (2) has picked up a book on the history of finance, will know is utter nonsense.

Ignoring the historical fallacy that her subject had just uttered, interviewer Terry Gross instead pointed out that Phil Gramm is now one of Sen. McCain’s economic advisors, to which Mr. Greenberger rejoined that Sen. McCain has admitted to not being an expert in economics, heaven forbid.*  You couldn’t script this stuff…could you?

"Fresh Air" is a worthwhile program that lands some very interesting guests, and its listeners ought to have the opportunity to learn about the existence of private derivative contracts. But there was no counter to the subject’s obvious biases, and it should be apparent that this ‘educational piece’ had a not-so-subtle polemic behind it. Watch for this thesis to become a point of attack for Senator McCain’s opponent in the general election: McCain, who knows nothing of economics, is advised by Gramm, who, under the influence of Wall Street lobbyists, passed the very law that has directly led to the current financial market meltdown, has caused millions to be evicted from their homes, and presumably, has contributed to global warming in some way. Despite its absurdity, the McCain campaign will have to do more than just laugh it off. Such is politics.

http://www.npr.org/templates/story/story.php?storyId=89338743

*McCain’s candid admission has been attacked in some circles as a sin of ommission. Meanwhile, both Sen. Obama and Sen. Clinton profess the belief that higher taxes and stiffer trade barriers will produce an economic Shangri-La (rather than a nasty bout of stagflation, when combined with loose monetary policy). Furthermore, with her claim to the Wall Street Journal that she just "doesn’t buy" that the expectations of future tax hikes can create disincentives to economic activity, Sen. Clinton casually swept away a vast body of knowledge that has several Nobel prizes associated with it. Sen. Obama, when he speaks of taxes, seems blissfully unaware of the fact that capital is increasingly mobile in today’s world, and has been for several decades. Given that kind of brazen nonsense, there’s a poignant irony in Sen. McCain being attacked for his admitted lack of economic bona fides, or said another way, for his awareness and willingness to admit what he does not know.