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When Sen. John McCain candidly admitted last year that he didn’t know much about economics, he probably spoke for millions of  Americans.

But now we’re getting a crash course in economics watching financial giants such as Bear Stearns, Lehman Brothers, Merrill Lynch, Fannie Mae, Freddie Mac and AIG either go bankrupt, get bought or get bailed out by the federal government. 

What is galling about this mess is that many of these financial catastrophes could have been avoided if government oversight had been in place. But there was a hands-off approach to certain high-flying sectors of the financial world, allowing Wall Street, in McCain’s words, to be “run like a casino.” 

There are two kinds of banks in our financial system. One is regulated, the other is not. Commercial banks (BB&T, Bank of America, Wachovia, etc.) are regulated. They are required to have financial reserves on hand to protect customers’ money, and a customer account is insured up to $100,000 by the FDIC.

Investment banks (Bear Sterns, Lehman Brothers, etc.) are, as The Wall Street Journal explained, only “lightly regulated, freeing them to take big risks and make fat profits at the cost of occasional losses.”

Also unregulated are hedge funds, mortgage companies and other arcane and exotic financial entities and instruments. In some cases, investors don’t understand how they operate but if they make big profits, who cares.

The federal government (Congress and the White House) have not cared enough. And only last spring McCain described himself as “fundamentally a de-regulator.” Now, he’s changed his tune and is calling for more government regulation, and even blamed the AIG crisis on “failed regulation.”

Barack Obama has been ahead of the curve. In a speech last March, he said investment banks, hedge funds and mortgage brokers should be subjected to the same regulations as commercial banks. And he is right. There is no justification for this two-tiered system for financial  accountability.

Both Obama and McCain have called for more openness and transparency about financial institutions — including CEO’s salaries. Many CEOs make fat-cat salaries even when their companies are going down the drain.

Obama wants CEO’s salaries to be exposed and shareholders, not just boards of directors, to have a voice about setting salaries. He supports the proposed Shareholder Vote on Executive Compensation Act, which would permit shareholders to hold a nonbinding vote expressing their displeasure with a CEO’s compensation package.  Though the vote would be nonbinding, it   would send a loud signal to the board of directors and the CEO. (McCain is now calling for shareholder involvement, too).

It is good politics to attack a CEO’s sumptuous salaries, but it’s also ethical, especially when CEOs get rich even when their companies are failing and stockholders are suffering.

Most downsized CEOs are definitely not suffering. According to The Washington Post, the executives at Fannie Mae and Freddie Mac earned more than $10 million in 2007.

And Robert B. Willumstad, who became AIG’s leader last June but will be replaced, will not be going on welfare. He will reportedly receive $8.7 million in severance pay and $4.1 million in retirement benefits. All of which means that a company’s failure doesn’t spell ruin for its CEO (as opposed to ruined stockholders).

Last July, Robert Reich wrote an essay in Newsweek titled “A Modest Proposal,” after the federal bailout of Bear Stearns and Fannie Mae and Freddie Mac. A former secretary of labor in the Clinton administration, Reich wrote:

“Herewith a modest proposal: when taxpayers insure a giant entity against loss — Freddie, Fannie, Wall Street investment banks, (and now AIG) — the entities must agree that for the duration of the bailout, their top executives cannot receive total annual compensation higher than that received by the president of the United States….”

The president’s salary is $400,000. That’s chump change to many  high-flying CEOs.

Rosemary Roberts writes a Friday column. Email: rmroberts@triad.rr.com.