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In times of crisis, the political parties are supposed to pull together--cast aside their partisan differences and come to the aid of their country.

But because the current economic meltdown is playing out in the final weeks of a close presidential election and the financial bailout is so unpopular with voters, at times it seems that partisans are working hardest at trying to fix the blame on one another, while the interest groups most implicated in the mess are doing their best to dodge all responsibility.

Here's how Democrats, Republicans, and the financial industry are pointing fingers at each other, and where their accusations fall short.

Gramm and Company

Former Senate Banking Committee Chairman Phil Gramm was a bete noire of liberals long before he became an economic adviser to Republican presidential nominee John McCain. Democrats didn't like his tireless efforts to advance his vision of minimalist government intervention in markets, or his strident rhetoric.

This summer, however, Gramm perhaps outdid himself when, defending McCain's economic pronouncements, he called Americans "a nation of whiners" going through "a mental recession." The comment not only appeared to have ended Gramm's public role in the campaign but also to have recast him, in light of the accelerating financial crisis, as the leading symbol of Republicans' laissez-faire follies.

A case in point is Gramm's prominent role in the 1999 repeal of the Depression-era, second Glass-Steagall Act. That law, which barred banks and investment houses from getting into each other's line of business (a similar bar regarding insurance services was added later) suddenly seems to be enjoying a mounting wave of nostalgia on the left.

Glass-Steagall "addressed a very real problem," Columbia University economist Joseph Stiglitz, a Nobel laureate and onetime economic adviser to President Clinton, wrote in a 2003 book. "Investment banks push stocks, and if a company whose stock they have pushed needs cash, it becomes very tempting to make a loan. The U.S. system worked in part because under Glass-Steagall, the banks provided a source of independent judgments on the creditworthiness of businesses."

In a September online posting, The American Prospect's Bob Kuttner labels the repeal of Glass-Steagall one of the "seven deadly sins" responsible for the financial meltdown. The 1999 law that delivered the coup de grace, he makes sure to note, is known as the Gramm-Leach-Bliley Act (in honor of Gramm and the two Republicans then heading the House committees of jurisdiction: Banking Committee Chairman Jim Leach of Iowa and Commerce Committee Chairman Tom Bliley of Virginia).

But when it comes to exactly how the 1999 law contributed to today's financial state of affairs, the left-leaning critics aren't clear.

Although Gramm himself hailed the measure as a "deregulatory" repudiation of the Depression-era belief that "government was the answer," some of the law's co-authors beg to differ. The measure was more about restoring order to a sector where new technologies and products had blurred the lines between banking, insurance, and investments, mostly at the expense of traditional banks.

Gramm-Leach-Bliley "was far more a reregulation than deregulation bill," Leach said in a recent statement written in response to the new wave of criticism. Although it allowed banks, investment houses, and insurers to affiliate with one another, Leach notes, the law required that each line of business be governed by the same regulator that had previously overseen it: the Securities and Exchange Commission for securities, the passel of banking regulators for finance, and state insurance regulators for insurance activities.

The law may not have been particularly visionary--failing, for example, to anticipate the consequences of a run on uninsured money-market mutual funds, much like the one that loomed last month--but it does not appear to have caused today's problems.

"Gramm-Leach-Bliley did not get these firms into trouble; the investment and commercial banks got into it on their own--not with their affiliates," says Robert Litan, an economist at the Brookings Institution. Indeed, Litan contends, "The measure may have something modest to do with fixing" the current mess, because it has allowed Bank of America to buy faltering Merrill Lynch and JPMorgan Chase to buy Bear Stearns.

A clearer verdict, however, seems to be in on another measure that Gramm shepherded through Congress in late 2000: The Commodity Futures Modernization Act, which addressed how government would regulate the complex and poorly understood world of financial derivatives. Many experts had long warned that Washington would do well to keep an eye on derivatives--highly leveraged bets on changes in the value of some underlying good, index, contract, or currency--because of their potential to magnify losses and spread them throughout the financial system. But Gramm's measure essentially ensured that derivatives would remain outside the oversight of either of the two agencies considered best equipped to watch them: the Commodity Futures Trading Commission and the SEC. "In essence, Wall Street's biggest players"--which, thanks to Gramm's earlier banking deregulation efforts, now incorporated everything from your checking account to your pension fund--"ran a secret casino," David Corn wrote in an article titled "Foreclosure Phil" in the July issue of Mother Jones. Today, he argues, the outsized bets on the riskiest subprime mortgages are at the heart of the meltdown.

In September, Corn and like-minded critics were joined by an unlikely fellow traveler: SEC Chairman Christopher Cox, who went before Congress to urge lawmakers to give the commission immediate authority to oversee the unregulated, $58 trillion credit default swaps market, which he described as "ripe for fraud and manipulation."

Fannie Mae and Freddie Mac

Conservatives haven't been sitting still while Democrats try to pin the subprime mortgage mess and its fallout on lax regulation and laissez-faire capitalism. In blogs, op-eds, YouTube videos, and now a new campaign ad by Republican presidential nominee John McCain, they have reversed the charges: The real culprits are Democrats--because they allowed, and even encouraged, inappropriate government meddling in the mortgage markets.

McCain's ad, for example, blames Democrats for the collapse of Fannie Mae and Freddie Mac, the two government-sponsored enterprises that had to be taken over by the Treasury Department last month. That collapse, the ad hints, also triggered the broader mortgage meltdown.

John McCain fought to rein in Fannie and Freddie, the ad declares, "while Mr. Obama was notably silent" and "Democrats blocked the reforms." Loans soared, then the bubble burst--and taxpayers are on the hook for billions of dollars, the ad says. It also includes a clip from a talk-show interview in which former President Clinton volunteers that Democrats' contribution to the problem was in resisting both Republicans' and Clinton's own efforts to regulate Fannie and Freddie.

It is a fair accusation that congressional Democrats at various times over the past decade either dragged their feet or openly fought efforts to give Fannie and Freddie an oversight structure commensurate with the two companies' rapidly expanding role in the economy. Democrats also balked at setting up contingency plans in the event the two did fail--until the prospect had nearly materialized.

But lax oversight wasn't the only reason for Fannie and Freddie's demise. They were also caught up, like much of the rest of the mortgage market, in investments in very risky home loans.

Some critics are blaming Democrats for this development as well. A recent article in the liberal Village Voice argues that policies adopted by Clinton administration Housing and Urban Development Secretary Andrew Cuomo set the stage not only for Fannie and Freddie's fall but also for the whole subprime crisis. Those actions increased the companies' so-called affordable housing requirements--that is, essentially insisting that Fannie and Freddie use more of their financial clout to help low-income and other disadvantaged borrowers become homeowners--without including adequate safeguards against risky or predatory lending.

In a new monograph, the American Enterprise Institute's Peter Wallison and Charles Calomiris also indirectly blame Democrats for Fannie and Freddie's foray into risky mortgage investments. Beginning in 2005, they contend, the two companies stepped up their investment in riskier loans to curry favor with their Democratic allies after accounting scandals in 2004 tarnished Fannie and Freddie's reputation and academic studies began questioning the economic benefits that the companies claimed to offer homeowners. Making more loans to disadvantaged borrowers was part of a tacit quid pro quo with congressional Democrats, Wallison and Calomiris wrote: greater investment in affordable housing in exchange for continued Democratic support and protection from regulation.

As did the Village Voice article, Wallison and Calomiris argue that Fannie and Freddie's expansion into the subprime market helped fuel the rush of other lenders. That, they conclude, is "the most plausible explanation for the sudden adoption of this disastrous course ... for [Fannie and Freddie] and for U.S. financial markets."

But, as the AEI authors concede, there were other plausible reasons the companies began taking on more risk after 2005: Fannie and Freddie themselves blame HUD's too-stringent affordable-housing requirements. By that time, of course, HUD was in Republican hands. Still, the authors dismiss the explanation offered by the companies' own regulator, James Lockhart, that the riskier lending in recent years was driven by competition for market share in mortgage securities--at a time when the prime markets were already saturated.

In short, in the rush to risk, Fannie and Freddie were creatures of the broader market, itself under the sway of larger forces that economists are only beginning to understand.

Fair Value Accounting

The Skeptics Caucus, an ad hoc, bipartisan group of House members that includes Reps. Brad Sherman, D-Calif., and Darrell Issa, R-Calif., said this week that it wasn't buying the whole notion of a crisis. Indeed, after briefings by experts, including William Isaacs, a financial consultant who served as Federal Deposit Insurance Corp. chairman in the 1980s, some of the skeptics said that much of the meltdown was a fiction created by an SEC bookkeeping requirement. "This is an artificial crisis. This is a crisis of choice, not necessity," Issa said after the House vote on September 29, according to The Washington Post. Change the rules, the skeptics argued, and the crisis is manageable.

Welcome to the "fair value accounting" wars. That's the name given to the SEC rule (which was actually developed by the private Financial Accounting Standards Board) that has long been a bone of contention between securities watchdogs and the financial services industry.

The rule essentially requires financial institutions to book their assets at the current market value--regardless of whether they're planning to hold or sell the asset. Critics say that the requirement--known as "marking to market"--has forced banks to show unnecessarily large paper losses on the mortgage-backed assets they still own.

This isn't the first skirmish between the industry and accountants. Indeed, controversy has flared periodically since the SEC introduced the first of several related rules in the 1970s. Nor is it the first time that the commission has come under heavy pressure to ease the standard. After taking over as SEC chairman in 1989, in the midst of banking-sector turmoil, Richard Breeden stuck with the rule despite bitter industry opposition.

This week, however, SEC chief Cox listened to industry and gave companies new, broad latitude to assign their own values to their assets when markets had become "disorderly" or frozen.

Why all the fuss over the green eyeshades?

Because in markets where trading volumes are thin, or have broken down completely, affixing current market prices to an asset is not only misleading, says the recent paper by AEI's Wallison and Calomiris--but can also lead to a dangerous downward spiral in value.

In response to losses in subprime mortgage portfolios last year, Wallison says, lenders demanded more collateral. That forced some companies to sell their assets in an already depressed market for mortgage-backed securities, which in turn fed suspicions about the quality of these securities. Soon, trading came to a near standstill--but cash-poor firms still had to sell, and accept rock-bottom prices, even for securities still producing income. "A downward spiral developed and is still operating," Wallison wrote in July.

Although fair value accounting "is a sensible system in some respects," he wrote, it is "not well designed for the challenges it has faced in the subprime meltdown, when it has been applied woodenly and without concern for the larger issues of systemic effect."

But the Financial Accounting Standards Board and its supporters see the attack as yet another instance of the industry trying to paper over serious problems. "We would still have this crisis whether there was fair value accounting or not," says Lynn Turner, former chief accountant for the SEC and now a Colorado-based adviser to Kroll, a corporate-risk consulting firm.

Turner says that the SEC and the FASB have heard critics' tales of woe before--in the run-up to the savings and loan crisis in the 1980s. Then, as now, the institutions argued that the decline in value was only temporary, part of a cycle. Then, as now, the complaints came only when markets declined, never when they rose. Then, as now, he says, the rule serves an important purpose: "If you don't come to grips with and manage the problem, it festers."

Turner contends that it's not accounting that has frozen the markets; it's the lousy assets that banks still have on their books. "There's such crappy paper that was sold. The market is frozen up because people do not want to sell them and book humongous losses."

And there's a lot of crappy stuff still left, Turner says. The International Monetary Fund, he notes, said in April that the financial losses from the U.S. mortgage crisis might approach $1 trillion--double what has been acknowledged.

Turner says that Cox's recent move is a serious retreat from sound practice. "I think it will cause more people to lose confidence in the market," he said. If the SEC told 9,000 investment funds that it's OK for the banks to fudge their balance sheets, "what do you think that would do to investor confidence?"