Deregulated financial markets claimed their latest corporate victims over the weekend with the bankruptcy of Lehman Brothers and the sale of Merrill Lynch to Bank of America. And today, we are learning once again that when working families suffer, when good jobs disappear, when millions lose their homes, eventually even the titans of Wall Street will share the pain.

It is hard to believe that only two years ago, Wall Street was claiming the U.S. financial sector was in danger from too much regulation. Now it is clear that, rather than dismantling what remains of our system of financial regulation, the next Administration will have to rebuild a robust, comprehensive regulatory system for the financial markets in a radically different financial landscape.

The sale of Merrill Lynch, an investment bank, to the largest U.S. commercial bank is deeply troubling, especially considering the role of deregulation and the Gramm-Leach-Bliley act in contributing to this crisis. The system of regulation of these integrated banks has failed, and it is clear that much stronger firewalls are needed.

We can no longer pretend that the subprime crisis will fix itself, or that the federal government does not have the power to enact a moratorium.

Last December, the AFL-CIO called for a moratorium on home foreclosures to allow for the restructuring of subprime mortgages in a way that would preserve value for both homeowners and lenders. The direct Federal takeover of Fannie Mae and Freddie Mac, and the Federal Reserve’s indirect financing of the acquisitions of Bear Stearns and Merrill Lynch, place the federal government squarely at the center of decision making in the mortgage markets. The AFL-CIO strongly supports the efforts of Senate Democrats to have Fannie Mae and Freddie Mac enforce a foreclosure moratorium. We urge similar action by the Federal Reserve and the Treasury in interacting with financial firms that are borrowing from the federal government on favorable terms.

The federal government is now using public money to prop up the financial sector on an unprecedented scale. But we need more than the wacka-mole approach of bailing out the latest victim that salves the effects of the crisis but ignores the causes of the crisis. The AFL-CIO urges that the federal government follow three principles:

 1)  Do not accelerate recessionary forces in the economy;

2)   Do not weaken regulatory oversight or set the stage for further speculative bubbles or the further weakening of financial institutions

 3)   Do not spend any public funds on severance pay for failed CEO’s.

Finally, the events of the weekend should make clear the desperate need for a President who understands the nature of the economic crisis facing our country and has a concrete plan for rebuilding our economy that is founded on good jobs rather than financial bubbles. Again today, Sen. John McCain repeated that the “fundamentals of our economy are strong,” a statement he and Pres. Bush have made regularly over the past nine months, as conditions deteriorated. As president, Sen. Barack Obama will lead the fundamental economic changes we so urgently need.

Paid for by the AFL-CIO Committee on Political Education (COPE) Political Contributions Committee, www.aflcio.org, and not authorized by any candidate or candidate’s committee.

Contact: Steve Smith (202) 637-5018