As one of the "Keating 5", and in fact the only one who was an actual business partner with Charles Keating ( through his wife ), we should presume that John has an inside track on understanding how to meld down a financial system.

What was the solution to the S and L meltdown orchestrated by Keating/Bush/McCain? Federal bail out. What will be the solution to the current banking system collapse? Bailout orchestrated by Bush/McCain. Go figure.

... to you for your detailed and passionate posts about the financial crisis in general and McCain's role in particular.

This is a very good example of how this medium can be used to talk about REAL issues.

But now we know that the critics were right, that instead of distributing risk more widely, we achieved the opposite.

I beg to differ. IMO, the risk was widely distributed because it was so well concealed.

The financial industry should have gotten food poisoning and puked this crap out before it did serious harm. Instead, the poison spread throughout the system and is now causing massive organ failure.

"Derivatives markets flourished, and a lot of people made a lot of money."

Isn't this a bit more accurate?

"Derivatives markets flourished, and a [small number] of people made a [great deal] of money."

McCain and his friends claim that markets know best in the long run . And this may be true; the current crisis can be seen as a way for the market to reveal what it knows. But we may not want to learn from the market in this way.

"Experience keeps a hard school, but a fool will learn in no other" (Franklin). "In the long run, we are all dead." (Keynes)

To blame Freddie and Fannie for the subprime crisis in any case, given that the definition of "subprime" was "crap we can't sell to Freddie and Fannie".

"Time is a great teacher, but unfortunately it kills all its pupils."

-- Louis Hector Berlioz

Why Are the Central Banks Flooding the Financial System with More Credit? The problem is not a lack of liquidity. It is financial institution bankruptcy, "massive organ failure" as described by Alkaline. Does the action of the Central Banks do any more that further impoverish the citizens of their respective countries?

Its a fascinating problem, though, in that these financial instruments are not clearly "blue sky." There was a story to be made that they were not worthless, although they are perceived as such now. The whole experiment might have been okay if the derivatives had been properly and incrementally tested, like a new drug, or a new website, for that matter.

If this country survives, the regulation should include a financial equivalent of the FDA--an entiity that provides oversight of these instruments and requires the companies introducing them to prove the strength of their value.

MBIA provided insurance to issuers of these (junk) mortgage securities. Since MBIA had a triple A rating, investors felt anything it insured was a safe bet. However, after the mortgage security crash, MBIA learned it was way overextended.

AIG also had insured these high-risk securities, and issued loan equivalents which backed them.

Now, my question is, why did the US really bail out AIG, a company which does most of its business abroad, and which largely evades US taxation? And why was the deal structured to avoid control by the US? Yes, AIG is still run by its executives under the bailout plan.

I would like to know more about the specific stories of how Phil Gramm passed some of his de-regulating legislation.

I've read that one of Gramm's gems was at the last minute tucked into some massive budget bill that "had to be passed" because time was running out. I assume there's a distinct possibility that some of these de-regulations were a surprise -- particularly to the people who had the responsibility of knowing what was going on.

You hear so often about these corrupt and clandestine legislative shennanigans of this type. It all makes me think the legislative process (and yes, oversight and regulation of that process) needs a serious tuneup. These jerks are clearly out of control, and the public needs a clear, simple and direct legal path by which we can send some of these folks to prison so they can gain their self-respect back by being examples of what can happen to the people who replace them.

Any knowledge of Gramm's legislative "stylings," Andrew?

If you are looking for an abuse of power, that's where to start.

But McCain's campaign isn't looking for an abuse of power. They're looking for a scapegoat that will draw attention away from the abuses of power that they enabled.

At least we know how Republicans are going to try to spin this now: If only Fannie and Freddie were completely privatized we would never have had a financial crisis!

It's just disgusting.

Reports are now coming out of the Treasury that the Feds are going to set up a private company to buy up all the bad debts sitting on Wall Street’s books. This is going to be just like the $300 billion bailout of the S&L industry in late 80s when the federal government set up the RTC to close down all the failed S&Ls only at an enormously greater cost. One of the biggest problems with the current crisis is that NOBODY really knows how far the problem spreads.

Let me repeat that NOBODY knows just how big this thing really is. The derivates market is a mass of fog designed to hide risk.

Thanks to the now repealed Glass-Steagall Act the S&L crisis of the late 80s was largely contained to the commercial real-estate and Banking sectors. It was expensive but survivable. The era of ‘shared-risk’ means that the current crisis hits the entire financial sector and even crosses numerous borders with markets around the world taking a beating.

This new ‘government sponsored corporation’ will be on the hook for all those bad debts and their derivatives. And NOBODY knows just how much money they are talking about. $500 billion, $700 billion, $1 trillion. We DO NOT KNOW.

Meanwhile the twits who made all these bad decisions will ride off into the sunset with their billions in profits and billions in taxpayer money that paid for all their mistakes.