The Blog @ Spolitics

The Gramm-Leach-Bliley Canard

The Obama campaign is arguing that the cause of the current financial mess is a bill that repealed the separation of commercial and investment banks. Of course, Obama doesn’t explain how this repeal caused the problems we’re facing today. He just makes an empty accusation.

But consider the current environment: Bank of America and JP Morgan Chase have both commercial and investment banking arms. They’re still in relatively strong financial positions. Citigroup is another example. It’s taken a beating, but it’s still standing

Lehman was an investment bank without a commercial bank. It went bankrupt. Bear Stearns is another investment bank without a commercial bank. It needed to be bailed out.

Indymac and Countrywide were mortgage originators who had commercial banking operations but no investment arms. The first went under and the latter needed to be rescued — by BofA. In fact, it’s the commercial-investment hybrids that are coming to the rescue of the less diversified financial companies.

So why is it that the law that led to their creation is somehow the problem and not the solution? What exactly can Obama point to to support his argument?

Nothing but partisanship. It’s obvious that all his campaign did was did up a bill that was written by a McCain adviser (Phil Gramm), point to it and say, “There’s your culprit.” That’s not leadership and it’s not what America needs right now. We need real solutions to the real problems, not finger-pointing and grandstanding. We’re electing a President, not a Monday-morning quarterback.

Update: Megan McArdle wrote a great post about this and she goes into more detail. It’s worth a read.

Update: The Wall Street Journal has an article recapping the recent financial turmoil. There was one quote that caught my eye in relation to the above post:

“The market was signaling that the stand-alone investment banking model doesn’t work,” says Tad Rivelle, chief investment officer at Metropolitan West Asset Management, which manages $26 billion in fixed-income assets. “We were on the verge of putting every Wall Street firm out of business.”

This is a clear contradiction of Obama’s claim. When Americans were looking to Washington for answers and solutions to the financial chaos, Obama responded with nothing more than an erroneous partisan cheap shot. Either he doesn’t know the truth, doesn’t understand the problem; or he does and he just flat out lied in the hopes of scoring some cheap political points. Either way, it doesn’t speak well of him.