McCain and Obama are too vague regarding the economy.

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http://www.marketwatch.com/news/story/o ... 0BEB981%7D

NEW YORK (MarketWatch) -- To borrow a line, it's not that I think Barack Obama and John McCain don't care about what's happening on Wall Street. I think they just don't get it.

Or, maybe they do get it but are unwilling to talk about what's really a complicated problem that calls for a solution requiring everyone to pitch in.

Instead both candidates have offered "blame game" rhetoric on the stump and little more in the form of written policy.

Listen to the Democrat talk about Wall Street, and you'll hear what the Republican thinks and be told that the crisis is the Republican's fault.

Listen to the Republican talk, and you'll hear him call the economy "fundamentally sound," blame Wall Street's woes on "unbridled corruption and greed" and propose the formation of a commission.

Sorry, guys, but how about a plan?

For all of the issues facing the next president, the collapse of the American financial industry is moving up the priority list.

Want southern Texas to rebuild after Hurricane Ike? It will take U.S. banking muscle, through loans and credit, to get it done. You might want American International Group Inc. to be a working insurance company, too.

Want to send more troops to Iraq or, perhaps, pull them out? Both plans will cost money that the government will have to borrow on credit that may or may not be there at all if it's forced to prop up insurance and mortgage companies.

All roads lead to Wall Street -- even Pennsylvania Avenue.

Predators and panels

It's one thing to not have a plan and quite another to have one that shows a lack of understanding of the financial mess and how we arrived here. But before we look at what the candidates have been saying, let's get one thing straight: Though a lack of regulation did have a central role in the financial crisis, it's not a complete explanation, and a response to that factor will not be the whole solution.

Deregulation didn't push homeowners to take on mortgages they couldn't afford. It didn't push ratings agencies to sign off on the junk. The government can't make business decisions for businesses. That's not how it works. Wall Street needs the ability to take risks. Business ownership is risk.

Obama, after a weak stump attack against "predatory lenders" early in the campaign, has, in the last few weeks, spelled out more than McCain has. He's talked about strengthening capital requirements on mortgage securities and derivatives, rigorously managing liquidity risk, and investigating ratings agencies and their potential conflicts of interest with companies they rate.

There's not much to criticize there, and that's the problem. Obama is echoing what people in the current administration -- people like Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke -- have been saying. There's nothing new. Obama's "plan" is a bunch of warmed-over ideas.

The bad news is that, as weak as Obama's plan is, it's better than McCain's. Aside from his idea to create a 9/11-style commission to find out what went wrong and propose changes, McCain wants a safety-and-soundness regulator for every financial institution.

Again, that's not bad, but it's hardly radical. And it doesn't reflect the immediate problem that firms like Bear Stearns Cos., Lehman Brothers and perhaps Morgan Stanley are tumbling dominos.

Considering his record, McCain should know better. He's consistently voted for less regulation, including the repeal of the Glass-Steagall Act. But it's not like McCain hasn't been out front. He warned about the looming risk at Fannie Mae and Freddie Mac back in 2003.

Obama doesn't have McCain's record, but that's no excuse. He wants to be president. He should learn or get some advisers who know finance and are willing to give us more than what was in the paper this morning.

Real change

So, what would a radical plan look like? My colleague Darrell Delamaide spelled out some good ideas in his column Wednesday.

Among them: forming a government-led supercompany like Resolution Trust Corp. to buy assets, create a single financial-services regulator and raise the cap on insured deposits.

But there are also some specific "would do" items on which they could take a stand, including:

- No more bailouts. Let the financial community sort itself out. Allowing financial firms to fail will hasten the healing process by cutting away the toxic from the strong.
- Promise to keep Paulson on. The former head of Goldman Sachs has shown that he's a good fireman. Let's see if he can build a Wall Street that's stable and strong. Pledge to keep him atop the U.S. Treasury if elected.
- Lift restrictions on private-equity investments in financial firms.
Require new compensation models on Wall Street that are tied to long-term performance.
- Persuade regular Americans to take a hard look at their own finances. Are they unreasonably in debt? Have they taken on an unreasonable mortgage? Provide tax incentives to people who save more than they spend.

The ultimate effectiveness of these platform planks is debatable, but that's the point. This is the stuff we should be talking about.

Or we can just talk about greed and corruption and a lack of regulation as household names, while our bank accounts and stock portfolios disappear.

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I think it's funny that Mccain is now calling for regulation. As a member of the Keating five (a group of senators who pressured regulators to back off of Charles Keating before the S&L crisis erupted), he has always been a proponent of de-regulation in the financial markets. Isn't this what they call flip-flopping now?

However, I would agree that both Obama and Mccain's plans are vague though. The problem is that almost all Americans don't understand what's happening in the financial markets. Both of them are trying to win votes more than anything else and if you get too detailed about what you want to do, you end up shooting yourself in the foot.

The article is also wrong about deregulation not being at fault for the crisis. The rating agencies did push off on junk (contrary to what the article above claims) because there was no regulation saying they would be accountable for mis-rating loans. They had nothing to lose by giving Triple-A ratings to loan packages consisting of homeowners with no jobs or assets. They caved into pressure (and who knows if there were under-the-table incentives to give top ratings) from the lenders. These lenders, in turn, had every incentive to make these loans and pass them off for a profit (with the rating agency's blessing) onto other institutions.

Another regulation that would have stopped the housing mess would have been simply to require that lenders who make a loan to hold it for a period of say 6 months. That would have made them much more cautious in who they lent money to. But as it was, they could pass off the loans within days. So they had every incentive to make as many loans as possible to whoever they could.

This is a regulation that would have cost taxpayers nothing to implement but would have done what is called "properly appropriating risk". That means that whoever causes risk takes on that risk. For example, if create a hazardous condition, I am liable for anyone who gets hurt by it. Right? Now imagine if I could create a hazardous condition and not get in trouble for anyone getting hurt. Now add on that I could make a profit for creating this hazard and not take on any risk... what do you think would happen? This would be an example of risk being misappropriated.

However, if you had tried to make such a regulation a few years ago, all the free market fanatics would have cried bloody murder because all they can do is react to any regulation as their right being violated or some other nonsense.