McCain Repeating Keating Era Mistakes, Regulator Warns
http://www.truthout.org/100108C
As the stock market recovers from its biggest single-day drop
since the crash of 1987, a former federal regulator who had a front-
row view of John McCain's role in the Savings and Loan scandal says he
is repeating some of the same mistakes.
William Black -- a deputy director of the Federal Savings and Loan
Insurance Corporation during the "Keating Five" scandal that nearly
ended McCain's political career -- says the Arizona Republican's chief
errors at the time were underestimating the importance of regulation
and relying too heavily on slanted advice from captains of industry.
"In the S&L crisis, he took his advice from the worst [kind of]
criminal. Charles Keating is the person he went to for his policy
advice," Black said. "Now, he certainly is getting advice from Phil
Gramm, Carly Fiorina, Rick Davis -- the whole group of economic and
top political advisers are lobbyist types. He just doesn't seem to get
it, ever, that the advice is going to favor their clients. Even if
they just stop being lobbyists, you can't just turn that off
instantly. It's their mind state that develops. ... The biggest lesson
is that, when you deregulate and de-supervise, you create an
environment where control fraud emerges. You hyper-inflate bubbles;
you get criminalization."
Though McCain's latest TV ads tout the senator's sporadic calls
for more government regulation, Black notes with interest that McCain
bragged recently that he was "fundamentally a deregulator." Black, who
is now an associate professor of law and economics at the University
of Missouri-Kansas City, also said that the deregulation that McCain
was until recently proud to have championed effectively took corporate
cops off the beat. "Nobody calls the Houston police department and
says 'I think there a problem at Enron,'" he remarked.
Black, who has long been critical of McCain's role in the Keating
affair, also viewed McCain's Tuesday announcement of his support for
increased FDIC insurance rates as something of a sham, calling it
"just one of his many contradictions" on economic matters.
In 1991, McCain railed against raising the FDIC insurance limit
from $40,000 to its current $100,000 level. "The perversity of Federal
deposit insurance is exemplified by the taxpayer bailout of the
savings and loan industry," McCain said, while omitting his own role
in the scandal that actually precipitated the S&L crisis.
"I think it is generally acknowledged that the failure of the
savings and loan industry, to a large degree, can be directly
attributed to the unwarranted expansion of deposit insurance," McCain
continued. "Basic coverage was increased from $40,000 to $100,000. No
longer was deposit insurance for the small depositor. It became the
safety blanket for large, sophisticated depositors and freewheeling
bankers."
Now, as McCain echoes Barack Obama's call to raise the FDIC
insurance level from $100,000 to $250,000, Black believes the idea
that FDIC insurance rates ever caused the S&L crisis can finally be
put to rest as being "complete bunk."
Yet, despite being a withering McCain critic, Black isn't
completely sold on Obama, either. While he notes with some
satisfaction that the Illinois Democrat "did at least try to do some
stuff on the regulation of subprime [mortgages] a couple of years ago,
he wasn't on key committees." Overall, on financial regulatory
matters, Black says Obama is "really somewhat untested. I'm not sure
exactly what he would do." But Black notes that the "experienced"
candidate is the one most likely to be tagged with responsibility for
the current mess. "McCain purports to be on the committee that dealt
with everything. [Meanwhile], he did nothing on subprime mortgages for
years."
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