Obama is corrupt, McCain is right and wrong

The causes of the credit crisis of 2008 are:

1. Fannie Mae and Freddie Mac extorted and recycled forests of toxic paper for the enrichment of its management and a styload of mostly Democratic pigs, principally Chris Dodd, Barack Obama, Franklin Raines and Jamie Gorelick. McCain was presciently right to support real privatisation or abolition of Sallie, Fannie and Freddie since 1994 for all the right reasons. Kudos, McCain:

These quasi-public corporations led our housing system down a path where quick profit was placed before sound finance. They institutionalized a system that rewarded forcing mortgages on people who couldn't afford them, while turning around and selling those bad mortgages to the banks that are now going bankrupt. Using money and influence, they prevented reforms that would have curbed their power and limited their ability to damage our economy. And now, as ever, the American taxpayers are left to pay the price for Washington's failure.

Two years ago, I called for reform of this corruption at Fannie Mae and Freddie Mac. Congress did nothing. The Administration did nothing. Senator Obama did nothing, and actually profited from this system of abuse and scandal. While Fannie and Freddie were working to keep Congress away from their house of cards, Senator Obama was taking their money. He got more, in fact, than any other member of Congress, except for the Democratic chairman of the committee that oversees them. And while Fannie Mae was betraying the public trust, somehow its former CEO had managed to gain my opponent's trust to the point that Senator Obama actually put him in charge of his vice presidential search.

2. Absurdly zealous accounting rules post-Enron leading to valuation at firesale prices of temporarily impaired assets which have much higher real dcf values.

3. A disconnect between ownership of firms and the size and type of risks undertaken by firms, often due to perverse incentives. Contrast the ownership mentality of a Warren Buffet towards Berkshire Hathaway which is now snapping up cheap assets, with the annual bonus mentality of bank CEO's despite their stock options or perhaps because their option allotment depended on annual results which depend on high-volumes of trendy risk (pun intended). Repeat after me: the herd is always wrong eventually, whether it's tulips, emerging market credit spreads, house prices, sub-prime mortgages or prime mortgages. The only exception may be "don't sell America short." That depends on seeing America as an organism with a superior immune system based on free speech and a free market in ideas.

Congress and the Executive are principally to blame. Of course bankers and everyone else will go with the herd to make money. Nearly everyone's real business mission statement is "Make as much money as possible without going to jail." One class that is not to blame is the short sellers. Would that there were more of them. That is where McCain is badly wrong. For example:

Mr. McCain added the wholly unsupported assertion that "speculators pounded the shares of even good companies into the ground." It wasn't very long ago that he blamed speculators on the long side for sky-high oil prices. Then oil prices fell. Now Mr. McCain wants voters to believe speculators are responsible for driving mismanaged financial companies to ruin. The irony is that this critique puts Mr. McCain in the same camp as some of the Wall Street CEOs who have led their firms so poorly. They also want someone (else) to blame.

David Einhorn, who shorted Lehman since July 2007, is a hero.