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September 19, 2008
Exclusive: McCain's Consistent Prescience Financial Sector Crisis Calls for Proven Leadership
In 1982-'83, as a rookie in Congress, John McCain publicly opposed President Reagan sending U.S. forces to Beirut. Shortly thereafter, Hezbollah destroyed their barracks, killing more than 240 Marines. Reagan withdrew from Lebanon and McCain, to his dismay, was proven right.
In the early 1990s, McCain stood alone against isolationist Republicans and implored President Clinton to intervene to stop ethnic cleansing in Bosnia and Kosovo. Years later, with McCain's lonely support, Clinton finally took the advice and brought stability to the Balkans.
During the 2000 Republican primaries, McCain spoke about "rogue state rollback," and warned of upcoming belligerency from autocratic regimes like Iran, Libya, and North Korea - years before the "axis of evil" and nuclear pursuits were revealed.
While debating then-Gov. Bush, McCain warned the country about the dictatorial ambitions of new Russian leader Vladimir Putin: "I know what's going on in Russia... he was an apparatchik, we know that he was a member of the KGB, we know that he came to power because of the military brutality and massacre that's taking place (in the Caucasus)." McCain added, "I'm very concerned about Mr. Putin. I'm afraid Mr. Putin might be one of those who want to make the trains run on time" - a blatant reference to Mussolini.
Later, when President Bush first met Putin, he said "I looked the man in the eye. I was able to get a sense of his soul." Upon hearing that remark, McCain snickered and famously responded, "I looked into Mr. Putin's eyes and I saw three things - a K and a G and a B."
For nearly four years, McCain challenged President Bush about his strategy in Iraq. McCain said it was failing; we needed more troops, new generals, and a new counterinsurgency strategy, he insisted. Today, there is not a louder defender of Gen. David Petraeus, the troop surge, and the continued pacification of Iraq than John McCain. But to watch in retrospect Senate hearings from 2004-‘06, as McCain grilled and challenged the original architects of the war - Gen. Casey, Gen. Abizaid, Gen. Pace, etc. - about what he perceived to be their flawed military strategies and tactics, is truly remarkable.
This seems to be a trend in Sen. McCain's long career: consistent prescience on matters of national security and issues of incredible magnitude. He warned of "mission creep" in Somalia and Haiti. Before 9/11, he opposed the so-called "peace dividend" which slashed our military and human intelligence budgets.
To the chagrin of his own party, he warned of campaign corruption, teamed up with Democrats and passed campaign finance reform.
He saw an emerging immigration crisis, tried to do something about it, and failed only due to the opposition from within his own party.
He warned Republicans that they would lose both the House and Senate in 2006 if they did not stop spending "like drunken sailors" - or stopped acting like Democrats - and pressed for ending pork-barrel spending and unwanted earmarks. Republicans didn't listen and lost both the House and Senate.
He was amongst the first to state that high energy prices and $700 billion U.S. taxpayer dollars going overseas "to countries that don't like us very much" as both the "largest transfer of wealth in human history" and the immediate national security crisis that it is. Today, Republicans and Democrats alike are following his lead to drill for domestic consumption.
And with today's subprime mortgage crisis on Wall Street, despite what his political opponent Sen. Obama asserts, it is clear that John McCain was prescient on this issue as well.
A little history, first: in 2003, Stephen Labaton of the New York Times wrote an article which described the Bush administration's attempts to avert this crisis. Here is an excerpt of Labaton's analysis:
Under the plan, disclosed at a Congressional hearing today, a new agency would be created within the Treasury Department to assume supervision of Fannie Mae and Freddie Mac, the government-sponsored companies that are the two largest players in the mortgage lending industry.
The new agency would have the authority, which now rests with Congress, to set one of the two capital-reserve requirements for the companies. It would exercise authority over any new lines of business. And it would determine whether the two are adequately managing the risks of their ballooning portfolios.
The plan is an acknowledgment by the administration that oversight of Fannie Mae and Freddie Mac - which together have issued more than $1.5 trillion in outstanding debt - is broken. A report by outside investigators in July concluded that Freddie Mac manipulated its accounting to mislead investors, and critics have said Fannie Mae does not adequately hedge against rising interest rates.
The idea failed, as we now know. Labaton explains why:
Among the groups denouncing the proposal today were the National Association of Home Builders and Congressional Democrats who fear that tighter regulation of the companies could sharply reduce their commitment to financing low-income and affordable housing.
"The two entities - Fannie Mae and Freddie Mac - are not facing any kind of financial crisis," said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. "The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing."
Representative Melvin L. Watt, Democrat of North Carolina, agreed.
"I don't see much other than a shell game going on here, moving something from one agency to another and in the process weakening the bargaining power of poorer families and their ability to get affordable housing," Mr. Watt said.
It isn't often that a political dispute in Congress involves Republicans arguing for greater regulatory control and Democrats insisting on a more lax oversight approach - it's usually the opposite. The reason this discrepancy arouse, however, is because Fannie Mae and Freddie Mac posed as quasi-governmental entities and thus carried with them the promises of many Democrat politicians. Republicans are not blameless, of course. Even though Democrats blocked the administration's proposals, President Bush could have still fought on in some manner.
But while he didn't, Sen. McCain did. Three years ago, McCain cosponsored the Federal Housing Enterprise Regulatory Reform Act of 2005. McCain addressed the floor:
I join as a cosponsor of the Federal Housing Enterprise Regulatory Reform Act of 2005, S. 190, to underscore my support for quick passage of GSE regulatory reform legislation. If Congress does not act, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system, and the economy as a whole (emphasis mine).
I urge my colleagues to support swift action on this GSE reform legislation.
It went on to fail. Most Democrats and some Republicans killed it on the vine. The same politicians who were wedded to the committees which "oversaw" these institutions - insisting everything was going okay - opposed the measure, and today, ironically, continue to head and chair these committees in utter disgrace. As they equivocate about what they did and when, blaming everything but their own chairmanship, the global stock markets plummet. Pardon the cliché, but how do they sleep at night?
History will record whether or not the ongoing government bailouts were adequate or inappropriate, but what will not be questioned is the manner in which this crisis emerged.
John McCain has his faults. Foresight is not one of them. On issue after issue, from Beirut, to the Balkans, to Russia and Georgia, the nature of Vladimir Putin, Iran, North Korea, the troop surge in Iraq, the energy crisis, to out of control pork-barrel spending and the rising federal deficit, McCain has been ahead of the curve - sometimes years, or a half-decade ahead - and has displayed the kind of instinctual judgment and presidential prudence needed in a leader.
When the noise of the campaign rhetoric quiets down, a fair-minded person can see that this unfortunate and avoidable Wall Street crash is merely yet another disaster John McCain anticipated, and offered solutions for, years ago.
FamilySecurityMatters.org Contributing Editor Nicholas Guariglia is a polemic and essayist who writes on Islam and Middle Eastern geopolitics. He can be reached at nickguar@gmail.com
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