Sensible regulation was always needed

In terms of crisis management, Bush administration officials and the Federal Reserve seem to be handling the turmoil on Wall Street about as well as possible.

It can’t be easy. They’re at the controls of a 747 with two engines out, flying blind in a storm without instruments, trying to wrestle the thing to the ground slowly without a crash.

But so far, there’s no sign of panic in their response, and no sign of ideology or politics interfering. The situation is too critical for that nonsense, and they seem to know it. Experienced, intelligent people are simply trying to make practical decisions in compressed time, with very little hard information to go on, and they’re winging it pretty good.

Now, how we got into this mess is a very different question, a question that the two presidential candidates are rushing to try to answer for voters.

“We are going to reform the way Wall Street does business and put an end to the greed that has driven our markets into chaos,” Sen. John McCain said Tuesday. “We will stop multimillion-dollar payouts to CEOs who have broken the public trust. We will put an end to running Wall Street like a casino. We will make businesses work for the benefit of their shareholders and employees.”

American workers, McCain said, “have been betrayed by a casino on Wall Street of greed, corruption and excess that has damaged them and their futures. And we’re going to fix it.” By Wednesday, McCain’s campaign was fielding a TV ad proposing “tougher rules on Wall Street to protect your life savings.”

Barack Obama was similarly blunt, describing the last few days as “nothing less than the final verdict on an economic philosophy that has completely failed.”

“When the White House is hostile to any kind of oversight, corporations cut corners and consumers pay the price,” he said Tuesday. “When regulators are chosen for their disdain for regulation and we gut their ability to enforce the law, then the interests of the American people are not protected. It’s an ideology that intentionally breeds incompetence in Washington and irresponsibility on Wall Street, and it’s time to turn the page.”

The two candidates, in other words, are playing a similar song. But coming from McCain, it sounds like a very strange tune, like bluegrass being played on a tuba. Like others in his party, McCain has typically seen regulation and government oversight as unnecessary obstacles to economic growth.

Earlier this year, for example, when the economy began showing signs of trouble, McCain promised voters “specific proposals to address our economic challenges.” However, he also promised that “they will be based not on big-government intervention, and not on raising your taxes, not on increasing government regulation but unleashing the forces of the free market and capitalism.”

A decade ago McCain pushed unsuccessfully for a moratorium on all federal regulations. Asked about that by the Wall Street Journal this spring, McCain said, “I’m always for less regulation. But I am aware of the view that there is a need for government oversight.

“I am fundamentally a deregulator,” he told the Wall Street Journal. “I’d like to see a lot of the unnecessary government regulations eliminated, not just a moratorium.”

That approach borrows a lot from the philosophy of McCain’s close friend and economics advisor, former Treasury Secretary Phil Gramm. As a U.S. senator, Gramm was widely considered the architect of our largely deregulated financial system that helped create this mess.

Obama, on the other hand, has been consistent in his analysis and policy. In a major speech in March, he laid out his approach quite clearly.

“Under Republican and Democratic administrations, we’ve failed to guard against practices that all too often rewarded financial manipulation instead of productivity and sound business practice,” he said. “We let the special interests put their thumbs on the economic scales. The result has been a distorted market that creates bubbles instead of steady, sustainable growth; a market that favors Wall Street over Main Street, but ends up hurting both. …

“Instead of sensible reform that rewarded success and freed the creative forces of the market, too often we’ve excused and even embraced an ethic of greed, corner cutting, insider dealing, things that have always threatened the long-term stability of our economic system,” he said in his Cooper Union speech.

Too much regulation, or regulation that is poorly crafted, can undoubtedly drain an economy of its vitality and flexibility. But as both candidates now understand — or at least say — a blind, ideological rejection of government oversight can be equally dangerous. It’s time for a return to good ol’ American pragmatism, to judging policies on whether they work, not on whether they pass some rigid litmus test.

— Jay Bookman, for the editorial board (jbookman@ajc.com).