John McCain talked to Fox News about the financial meltdown and Congress’ failure to pass the compromise emergency liquidity bill. McCain suggested that the Treasury act without Congress within its authority to bolster liquidity by extending FDIC insurance to a greater number of depositor accounts, and also suggested that Henry Paulson doesn’t need Congressional approval to act:
“I have talked to the President this morning and recommended an increase from $100,000 to $250,000 FDIC insurance on deposits. I also strongly recommended that we use the exchange stability fund that the Treasury has available — $250 billion — to shore up these institutions. Also, the Treasury has at its disposal about $1 trillion that they could begin without Congressional authority buying up some of these terrible mortgages and help stabilize the situation. So I’ve talked to the President. I know that we have to act. Even though we failed yesterday, even though I went back and was able to get more Republicans on board or help get more Republicans on board, we will go back to this, and I will be engaged always where I think America needs engagement.”
“We’re going to have to change enough Republican and Democrats’ minds. It was 95 Democrats that voted against it. People’s credit is at risk here — the ability to buy a car, to make your home loan payments, for small businesses to get credit. Look, this is affecting Main Street America. And we’re going to have to resolve it, and we’re going to have to act. One point two trillion dollars of American savings, pensions, IRAs, mutual funds, investments, et cetera was wiped out, and that hurts Main Street. I’ve got a plan for cutting spending, for keeping taxes low, for making sure that people can stay in their homes, and a long-term plan. In the short-term, we’ve got to take these measures I just outlined to you, and let’s go back, and let’s make Americans understand who are opposed. I was watching your program earlier. How this affects not Wall Street, but Main Street and working families of America.”
Republicans are not going to get far on the “95 Democrats voted against it,” and they’re missing an opportunity that the failure provides. In the first place, more than 130 Republicans also voted against it, more that 60% of the House Republican caucus, which provides more of a rebuke to leadership than the 40% of Democrats who bucked Nancy Pelosi. The bottom line of the rebellion isn’t a partisan split or a bad speech by Pelosi right before the vote — although that certainly didn’t help — but overwhelming opposition by voters five weeks before a national election.
The FDIC solution seems to be gaining popularity with Republicans, and that may help keep depositors from starting bank runs, but it doesn’t do much to resolve the real cancer at the heart of this financial crisis. Congress simply cannot escape its responsibility for its deliberate issuance of junk bonds through Fannie Mae and Freddie Mac based on bad loans, and until Congress acts to provide some sort of rational floor for the MBSs it launched, American credit will have little credibility. Until enough stability comes back into that market, the negative balance of these American-government backed bonds will continue to sink the investors who bought them, believing that the US stood behind Fannie/Freddie actions.
McCain’s statement raises another question. Can the Treasury spend $1 trillion without Congressional approval to buy back these MBSs? If so, then what was the point of the negotiations of the last few days, Paulson coming to Pelosi on bended knee, and the futile vote yesterday — political cover? Somehow, I find it difficult to imagine that Treasury can indeed act on this scale without Congress.
However, I’ll say this for McCain. He appears to be actually demonstrating some leadership on this issue. Where is Barack Obama?