opinion

The latest news from the financial markets is bad. Merrill Lynch & Company is sold for pennies on the dollar and Lehman Brothers goes into bankruptcy. All of this after the emergency purchase of Bear Stearns Companies earlier this year and a capital infusion from the federal government for Fannie Mae and Freddie Mac two weeks ago.

This financial-industry turmoil is a major threat to our economy and its ability to create jobs that pay well. Unemployment is rising. Those with stock and bond investments in a 401k can see the negative impact.

The banking and investment industries have been inadequately regulated, and consumer protections were diminished. These industries were allowed to develop highly sophisticated new financial products with inadequate scrutiny. They were allowed to carry too little capital reserves for the inherent risk in their activities.

The Bush administration has taken pride in loosening oversight and reducing "unneeded government regulation." While the rhetoric is appealing, we are now seeing some of the results. The country needs sound regulation to prevent the financial industry from abusing its influence to the detriment of non-market participants.

Here are some examples of the "unintended consequences" of reduced regulation of the financial industry:

•A local home owning couple find that they can’t refinance an adjustable rate mortgage unscrupulously sold to them because the house is now worth less than the amount of the mortgage.

•A local nonprofit loses hundreds of thousands of dollars investing in a short-term bond mutual fund that, unbeknownst to the nonprofit, held sub-prime mortgage securities.

•A young hardworking financial analyst is told to box up her personal belongings because the firm she had worked for is closing.

•A local hospital takes a sizable loss on its reserve funds because its financing was dependent on "auction rate securities" that it could not sell in the marketplace.

Not only do specific banking and security regulations need to be tightened, but a new philosophy of regulation needs to be adopted by the next president to avoid these unintended consequences. Which of our two major presidential candidates would be more aggressive on regulation of the financial industry?

Neither candidate has fully detailed his views on regulation. There are, however, some indicators that might give insight as to who would be better. Let’s start with lobbyists.

Part of the financial-services industry’s problem today is the undue influence lobbyists had with President Bush and Congress on changing the financial industries. Who would reduce the lobbyists’ influence?

Sen. Barack Obama has refused lobbyists’ contributions to his campaign. Sen. John McCain has accepted them. In fact, McCain’s closest adviser on Wall Street is the chief executive of Merrill Lynch & Company, which gave McCain’s campaign $500,000.

Obama proposed "modernizing the rules of the road to suit a 21st-century market." He also introduced the Stop Fraud Act in Congress and has called for "regulating investment banks, mortgage brokers and hedge funds much as commercial banks." McCain has no proposals for changing financial regulation. His quarter- century public record shows he embraces the Republican Party’s view of deregulation.

Obama has raised serious concerns about how these financial problems are hurting the economy and creating unemployment. McCain said this week that the economic fundamentals of our economy are strong.

Obama wants changes in who benefits in our economy. He proposes a middle-class tax beak of $1,000. McCain wants to give nearly $2 trillion in tax breaks for corporations over the next 10 years.