With the collapse of world investment banking giant Lehman Brothers (which came right on the heels of the collapse of Bear Sterns, another investment bank), Americans are staring down the barrel of an economic crisis that is beginning to look more and more like the financial conditions that led to the stock market collapse and Great Depression of the 1920s and 30s. The subprime mortgage crisis has put a new crunch on the American economy, which is having repercussions around the globe. Both Lehman Brothers and Bear Sterns had run massive subprime lending units, and lost billions as the ability of borrowers to repay their creditors fell through the floor. As a result, businesses are failing, as are the investment firms that are lending them capital to get started. People are unable to pay the skyrocketing rates on adjustable mortgages, and consequently, they’re losing their houses. The 2008 election will be crucial to the future of the economy, and the housing crisis in particular. Of course, John McCain says that he “doesn’t believe” in government intervention to halt the downward spiral of America’s economic woes. In other words, McCain says he’ll do nothing. The last eight years- and particularly the last four- have seen an incredible erosion of consumer confidence, along with the stripping of consumer protections. Regulation of a number of banking sectors- including subprime mortgage lending- has become incredibly lax. And with massive tax cuts to corporations and the wealthiest Americans, federal revenues are depleted, leaving the government impotent to execute any bailout that might have restored some minutia of confidence in the housing market. In the meantime, George W. Bush is downplaying the failures, referring to the “adjustments” and insisting that he’s pleased with efforts to “promote stability” in the turbulent market. Still, McCain says he’ll do nothing. Politically, the Lehman failure reinforces the underlying fear that the economy is stalling toward recession, with no real end in sight. Former Chairman of the Federal Reserve Alan Greenspan- a Republican and a friend of John McCain- said the US is in a “once-in-a-century” economic crisis that is “by far” the worst he’s seen in his career, and that “it is still not resolved and still has a long way to go.” Criticizing McCain’s plan to initiate more than $3 trillion in tax cuts in the midst of the turmoil, Greenspan also said that he’s “not in favor of financing tax cuts with borrowed money.” While Greenspan went on to say that the government should not bail out every institution that failed, he predicted that more major banks would surely fail, and that moderate intervention could be beneficial. The developments could work to strengthen Barack Obama’s claim that he’ll be more successful in handling the economy. Obama has outlined a detailed plan to reverse many of the detrimental effects of the crisis, including: granting incentives to banks who are willing to stabilize volatile home loans, enacting a stimulus package aimed at preventing foreclosures and helping local governments make up for budget shortfalls as a result of the crisis, and modernizing the financial regulatory system. Still, McCain says he’ll do nothing.
