Tuesday evening, the Federal Reserve announced that it would lend troubled insurer AIG $85 billion, in return for a 79.9% stake in the company. This move comes on the heels of the bailouts of Freddie Mac and Fannie Mae, and just months after the bailout of Bear Stearns. CNBC has put the total tab for the recent government rescues by the Fed and the Treasury Department at $900 billion.

The rescues, while necessary to prevent a wider financial meltdown, will cause the already near-record federal deficit of $407 billion to explode. Before the bailouts, the projected federal deficit for 2009 was $546 billion. But when President George Bush came to office eight years ago, it was projected that America would have a budget surplus next year of $710 billion. So what happened?

As an analysis by the Center on Budget and Policy Priorities shows, 42% of the “fiscal deterioration” was due to the Bush tax cuts enacted in 2001 and 2003:

The key factors have been large tax cuts and increases in security-related programs. For fiscal 2009, some $1 trillion of the $1.3 trillion deterioration in the nation’s fiscal finances stems from policy actions, and tax cuts account for 42 percent of this $1 trillion deterioration.

Sen. John McCain (R-AZ), for his part, has proposed a doubling of the Bush tax cuts, which would blow an even bigger hole in an already-spiraling federal deficit. A Center for American Progress analysis concluded that McCain’s proposals would result in a deficit of $505 billion, before the government has to ante up for the bailouts. With America on the hook for $900 billion, and with the effects of Bush’s irresponsible tax cuts lingering, how will McCain pay for any of his proposals?

Digg It!

While running for the Republican party’s nomination in 2000, John McCain supported a partial privatization of Social Security that would have encouraged workers to shift their Social Security contributions into the stock market.

Since then, the stock market has plunged, bubbled, and plunged again, with the Dow Jones Industrial Average closing 8% lower yesterday than it was on January 11th, 2000 when John McCain unveiled “a program to shore up Social Security through the establishment of individual investment accounts.”

This means the stocks in a private account would have seen their value drop over almost a decade, with their investment further eroded by the rate of inflation (a dollar invested in 1999 is worth only 78 cents in 2008 dollars, even if the stock market had stayed exactly flat).

Despite these wild fluctuations, John McCain has consistently supported privatizing social security, supporting the Bush plan in 2005, and telling the Wall Street Journal as recently as March of this year that he “backs a system of private retirement accounts that President Bush pushed unsuccessfully.”

On September 6th, McCain finally clarified his campaign’s stance on private accounts, confirming to the AARP Life@50 conference that he was, in fact, in favor of them. Since September 6th, the Dow has plunged over 5%.

The radical Bush-McCain plan to privatize social security is unnecessary, would shorten the programs life, and would put retirement security at the mercy of the “casino” on Wall Street.

Our guest blogger is Ed Paisley, Vice President for Editorial at the Center for American Progress Action Fund.

The Bush administration’s dysfunctional Securities and Exchange Commission today will attempt to implement, for a second time, a ban on naked short selling – a stock lending practice that is illegal in the United States if the person doing the selling doesn’t in fact have a line on the stock he’s trying to sell. Short sellers are hammering Wall Street stocks, courtesy of the SEC’s inability to stop what is already illegal, and what it tried to stop back in March, to no avail.

Such ineffectiveness only compounds the greater problem haunting U.S. stock markets due to short selling – the ability of speculators to relentlessly sell a stock short (betting its price will fall and then working to make that happen) after the SEC in July last year decided to end the so called “uptick rule.” This rule, in place since 1938, prevents speculators from selling a stock short if the price of the stock is falling. Only when the price is rising can speculators bet against that price.

The uptick rule made it hard for speculators to push the price of a stock down after betting it would fall. The demise of the uptick rule took effect in July 2007, just as the U.S. housing crisis began to grip global financial markets. The SEC thought less supervision of short selling would help U.S. financial markets. Since then, legions of short sellers have progressively hammered Wall Street, contributing greatly to the current stock market crisis.

Why did the SEC end the uptick rule? And why can’t it ban what it already considers illegal? Well, under the Bush Administration the SEC has been pushed to implement a governing conservative philosophy that argues fervently for less supervision of our financial system. We can see today how well that’s turned out.

Conservatives running our financial regulatory institutions have so effectively peddled this shockingly imprudent deregulatory fervor that the SEC is a revolving door. Three largely ineffective SEC chairman and a total of 13 different commissioners have graced the agency during the Bush years. Not since FDR – a four-term president – have there been more than ten commissioners and three chairmen appointed to the SEC. Experienced staff have also been fleeing the agency. Why stay when your supervisory mandate is to do less?