[mukto-mona] Obama regained the frontrunner status in the aftermath of financial crisis

The financial crisis in Wall Street helped Obama to regain the frontrunner status

 

A.H. Jaffor Ullah

 

Oh, what a turbulent week it was in the Wall Street.  The third week of September 2008 will surely go down in the annals of history of American finance when the threat of an impending meltdown had spooked the financial world, globally.  Not only did the U.S. market had plummeted, the rest of the world also caught the contagion resulting in heavy loses. 

 

Is the market bottoming out?  Only time will tell.  The market meltdown, however, had helped the candidacy of Democratic ticket of Obama-Biden.  The sore loser of course was Republican ticket of "Palin-McCain."  Sorry for the intended mistake.  It should be 'McCain-Palin' ticket but in a political rally, the super enthusiastic VP candidate, Governor Sarah Palin, put her name first in a stump speech, which brought laughter in few commentators.  Ms. Palin, who is a newcomer to national politics, is yet to learn how to deliver effective speech without making political faux pas.

 

The Obama campaign must be on cloud nine today (September 18, 2008) when Senator McCain not only flip-flopped his position on government-led regulation of financial institutions but he also suggested in a political speech that George Bush should fire the chief of Securities and Exchange Commission (SEC), the governing body of the U.S. financial institutions.  However, unbeknownst to Senator McCain, the U.S. president has no power to fire the SEC chief; the president can only appoint one.  A seasoned senator such as McCain is yet to know this for a fact! 

 

For the last 6-7 years, a boom in housing market propelled the U.S. financial market to a higher level.  Mr. Bush is the champion of building an "ownership society" in America.  To help build that society, Dr. Alan Greenspan, the ex-chairman of Federal Reserve Bank kept the interest rate way too low.  Thus, the financing cost of loans being too low, a boom in housing market ensued. 

 

However, all good things must come to an end.  So did the housing market.  In the process, the lending organizations became too greedy; they granted loans to people who could not have afforded to borrow money to buy real-estate.  This predatory practice of loaning money to low income people for real-estate purchase is called "sub-prime" lending.  When the economy started heading south, many borrowers of the sub-prime lending defaulted on the loan.  Consequently, the lenders started repossessing the houses, which the banks could not either sell or when the sold the houses they incurred a heavy loss. 

 

In the last few years as housing bubble was developing in America, the financial world came up with many exotic products such as "Mortgage-Backed Securities," "Credit Default Swap," and few derivatives.  The big banks were securitizing the worthless mortgage portfolio whose values were going down day after day and month after month.  Thus, we have seen quite a few Wall Street bankers such as Bear Stearns being bailed out by the U.S. government in March 2008. 

 

The Bush Administration however did not bailout another Wall Street investment by the name Lehman Brothers perhaps because the fallout of this bank won't adversely affect the financial world.  This week, when the insurance giant, AIG, was teetering on the verge of bankruptcy, the Bush Administration decided to bailout the giant company for the fear that the fallout from the insurer's demise may create a panic, globally.  To ease liquidity, the Federal Reserve Bank pumped money into the banking system.  September 15 through 19, 2008 was a trying time in the Wall Street.  As AIG's trouble came into the fore, there was a fire sale going in the share market allover the world.  The Bush Administration had to do something to stop the bleeding.

 

As this high drama was going on in Washington DC, both Senator McCain and Senator Obama were campaigning in the battleground states, which will decide who occupies the White House in 2009.  Senator Obama was pointing out that a lack of regulation and government oversight have brought the disastrous results leading up to the collapse of financial world in America.  To remedy the problem, he had been recommending for more regulation.  However, Senator McCain held the view that government should not get into the act of regulation.  His view matched with that of Republican Party, which is the champion of less regulation. 

 

McCain was quick to blame the greediness of the financial managers that is so prevalent in the Wall Street.  He wrongly said on September 17 in the morning that "the fundamentals of our economy are strong." Democratic lawmakers including Barack Obama called him out of touch and just like Bush.  In a matter of hours McCain reversed his opinion to say that there is a crisis at hand in the financial world and he squarely blamed the chief of SEC. 

 

A week ago, the McCain campaign was elated knowing that their candidate was the frontrunner as per quite a few opinion polls.  In fact, McCain was leading by 5 percentage points.  Some pundits said that it is normal for the Republican ticket to enjoy a bounce in the opinion pall in the aftermath of a successful convention.  Also, American electorates were fascinated by the charm of McCain's running mate, Sarah Palin.  She is the darling of America's conservative and Bible-thumping voters.

 

However, the honeymoon period of Sarah Palin did not last long.  The media in America started to question Palin's "experience" in foreign affairs.  To make matters worse, she overstated her experiences, which were correctly pointed out by the press.  Thus, the ephemeral bounce in the opinion poll for McCain-Palin ticket had all but evaporated. 

 

The real winner from the financial debacle was Senator Obama. Time and time again, the pocketbook issue dominates the presidential election.  An overwhelming majority is saying that they are worse off now than four years ago. Therefore, if the economy is in such a bad shape as it is now and a recession looms large, 45 days from now when the voters head to the polling place, they will vote for the candidate who they think is a better stewardship of the economy.  All the polls so far indicate that the voters trust Democrats to be better manager of economy.  Thus, a sea change in public opinion is about to happen on November 4, 2008.

 

In summary, Senator Obama has every reason to be happy because there is an underpinning for his candidacy from independent voters who decide the fate of the election.  If Obama campaign could maintain the lead in the public opinion poll, the Democratic ticket should be able to come out as the winner.  From my perspective, all indications are there for McCain's defeat.  Privately, many Republicans have also written off this election.  The world has to just wait about six more weeks to learn about the final result.  It is often said that morning shows the day.  The Democrats could almost smell the sweet scent of the victory at long last!

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Dr. A.H. Jaffor Ullah, a researcher and columnist, writes from New Orleans, USA

                              

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