It’s the economy again, stupids
I’ve said several times that economics is one of my weakest areas. But there are a few things I do know about the current crisis, and here are three of them: there’s a lot of greed out there, loans were made that shouldn’t have been, and now we’re all likely to have to pay.
Is it a Democrat or Republican problem? I don’t think it’s either, or maybe it would be more accurate to say it’s both. Is it clear which party would be better at fixing it? Not at all. But each side will definitely be doing some scrambling to come up with a plan that sounds like it knows how to deal with the mess. And I am fairly sure that, although John McCain is on record as saying he’s no economics expert, he’ll talk to advisors and try to start sounding as though he is. As will Obama.
Mike Allen of Politco writes that this will affect the election, and it makes sense to think so. But whether most voters will assume that a change to a Democratic President (and even more Democratic Congress than before) is in order, or whether they’ll judge that Obama is too inexperienced to handle it and they want someone more known such as McCain at the helm—or whether most people will judge that the candidate they already favor is the man for the job and therefore there will be no substantial change in the polls—is anybody’s guess. I haven’t a clue.
Reading passages such as this one isn’t exactly reassuring, though:
Wall Street still faces a world of hurt, and it will take more than one day to set it to rights. What happened to Lehman and Merrill will reverberate for months, if not years, through the investment-banking industry. Meantime, other Wall Street firms will have to react fast to make sure they have adequate capital and, just as importantly, the market’s confidence.
And then there’s this lede:
The American financial system was shaken to its core on Sunday.
Alan Greenspan’s words are so deeply pessimistic I won’t even quote him. Click on the link to read, if you dare.
Confidence is in short supply right now. For a long time we’ve felt that greed was out of hand, that CEOs were getting compensated in an obscene manner, that the housing bubble would burst—and, most specifically and shockingly, that old-fashioned conservative (in the financial sense) fiscal practices about lending had been swept away in the scramble for what was seen as easy profit and easy credit in the real estate market. Greater regulation seems necessary, but it has its dangers, as well.
This may offer a bit of comfort:
After the rescues of Bear Stearns, Fannie Mae and Freddie Mac, Fed and Treasury officials were determined to avoid bailing out another struggling financial firm. They drew the line at Lehman and stood their ground through a high-strung weekend of negotiations, insisting they wouldn’t put public funds at risk to finance the rescue of another financial institution. The expansion of short-term lending facilities showed that while they were unwilling to back another bailout, they are still struggling to find ways to ensure broader market stability and are prepared to take new steps to do that…
Fed officials have some confidence that they are better prepared to deal with the fallout from a failure than they were when Bear Stearns failed, and the Fed arranged a shotgun wedding to J.P. Morgan Chase & Co. The emergency lending facilities it set up after Bear could help cushion the blow to the market if Lehman now fails.
And now I’ll defer to those in the comments section who no doubt have more specialized knowledge than I do about all of this. Talk amongst yourselves.
[ADDENDUM: Re the political fallout for Obama, you might want to look at this.]
Summarizing Arthur Laffer and Stephen Moore in today’s WSJ: tax cuts have worked and are working; Obama’s claims that tax cuts support “wealth not work” are false. link
Former Sen. Phil Gramm said the American economy is strong, economic detractors are whiners; then he resigned as an advisor to the McCain campaign. If Gramm’s words and resignation were not planned, they should have been. I agree with him, and wonder if his words are not a net plus for the McCain campaign. Gramm spoke at a moment when only information-philes (who were likely to agree with him) were closely watching the campaign. By the time normal voters (who were less likely to agree with him) began paying attention, both Gramm and his words were off the stage.
“For a long time we’ve felt that greed was out of hand, that CEOs were getting compensated in an obscene manner. . .”
Ther are two problems here.
The first is an inherent perversion in the system. The problem is not CEO compensation per se, but boards of directors. Boards are supposed to exercise oversight on CEOs but have become inbred closed societies. T sits on the board for NeoNeocon, Inc. and votes for neoneocon’s compensation; NeoNeocon sits on the board for T, Inc. and votes for T’s compensation. The solution is to reform corporate governance at the board level.
The second problem is a double standard. While I agree that CEO compensation can be excessive, does anyone complain when actors and actresses are paid tens of millions of dollars for a single movie role? In their best years, both Bill Cosby (I’ve been a big Cosby fan for 40 yrs) and Michael Jackson reputedly earned over $100 million each per year yet no one ever accused them of “scamming the system.”
Keep in mind, that the CEOs of large corporations are responsible for tens of thousands of jobs while celebrities, at the very best, result in the direct employment of only a handful of people.
I don’t know that I know enough to be worthy enough to comment, but when has that stayed my hand?
I’m retired. I sold all equities in my accounts in Aug. ’07, and bought longterm S&P puts, sensing this tsunami. Those’re my bona fides.
The incredible mismanagement by Greenspan and the Fed has brought us to this; a auper-gigantic Ponzi which is falling apart in slow motion. Fannie and Freddie should have filed for bankruptcy, but instead they’re in conservatorship with hopes of emerging from the protection of us, the taxpayers, and being able to play at their old game again.
The eventual costs of our slo-mo crash are truly enormous. Couple this with the other mega-Ponzis, the Federal entitlements.
Who in his right mind wants BHO the mega-taxer of the rich to have a Presidential say in all this? Riches are flash-evaporating daily. As POTUS, he will worsen this already terrible process and drive us all to destitution. We will have achieved true equality of misery, thanks very much.
We’re experiencing a big, whopping margin call. Overuse of leverage has come home to roost.
Sadly, it has gone on long enough to be ‘baked in’ to our economic system. The monetary authorities are attempting to skate by in this de-leveraging process with as little pain as possible. There are myriad techniques to forestall or spread out or redirect the pain inherent in such a task. They are all in the FED’s arsenal. Whether the FED can pull it off is the big question.
To me, it’s all a sign of the times. It’s greed and hubris and most disturbing to me, this unspoken notion that ‘it can’t happen here’.
As they say, I hope for the best, but am preparing for the worst.
When times are this tough, you don’t want to change horses mid-tsunami. Vote President George W. Hoover S. McCain III for 4 More Years of Success (and Temperance)!
sashal: it is illogical and utterly ignorant to blame a Pres, any Pres, for what’s happening to the economy. You may recall we have a Congress with your superbrilliant Dems running the show, also folks with fixed terms of office like the Fed Reserve Chair, about whom the Pres can do nothing.
All the Fed really has to do is prevent deflation and keep inflation under control. Beyond that, its really just tinkering.
In the past few years, what I have heard from Greenspan has seemed a little off. I don’t know why.
If you were married to Andrea Mitchell would your mind be unaffected?
sashal: You might want to read the link in my “addendum” before you laud Obama’s ability to handle this vs. McCain’s.
More broadly, it seems to me that this is a mess with a lot of blame to go around, including failures in both the Republican and then the Democratic Congresses.
8 years republican administration
6 years republican congress
all this years of trickle down misery
unregulated crap,
wild market self-regulating theories(19th century, anyone ?).
The Republicans caused this mess. They own it lock, stock, and barrel. Do some reading on the repeal of Glass-Steagall and on the Commodities Futures Modernization Act.
J.H. Kunstler’s meme this morning: “Republicans: the party who wrecked America”. Works for me.
There’s a line in a classic Seinfeld:
Jerry (to dry cleaner): “Why can’t you just admit you shrunk the shirt?”
Drycleaner (leaning close and whispering): “Alright….. we shrunk the shirt”
Republicans will never, ever admit that they shrunk the shirt.
but I admit, in one respcet you guys are correct
all of this bad economic news doesnt matter.
What matters to most people is “Can Sarah Palin have a beer with them?”. Thats all that matters. Thats the litmus test by which all Red blooded patriotic salt of earth meat and potatoes eating gun loving pickup driving small town non arrogant Americans choose their candidates nowadays.
It wont be long before McCain starts calling Lehman Brothers elitist
Dear Neo, I wouldn’t get rattled by anything Greenspan says. By their fruits ye shall know them, and what has been going on in the financial sector are largely the fruits of Greenspan’s policies.
Seeing what those policies wrought, one may be led to question his Godlike financial acumen.
and how about McCain?
Today he blamed the current mess on “ineffective regulation”.
Actually, I could not agree more. McCain’s problem, of course, is that he has been one of the leaders over the years in assuring that regulation is gutted, making them ineffective. The fox thinks he is the solution for the problem in the henhouse. Yeah, right.
The birth of ineffective regulation was the Reagan administration so this problem has been in the making for a long time. It will not and cannot go away over night.
Of course Alan Greenspan presided over nearly this entire period so he probably has as much blame as anybody.
well sashal, you have a long list of unsupported accusations, each of which would be complicated to discuss. Why don’t you pick one narrow piece of it and try to construct a case, and then we’ll all discuss it and try to arrive at some understanding? You gave yourself a lot of possible topics:
We are in an economic tsunami/
McCain is like Bush and Hoover/
Trickle-down doesn’t work/
Deregulation doesn’t work/
Markets do not self-regulate/
Market forces are an outdated idea/
Republicans are not only primarily, but entirely to blame/
Clinton signing the repeal of Glass-Steagall was the Republicans fault/
The Apocalypse-monger JH Kunstler, who predicted a catastrophe from Y2K and predicted in both 2005 and 2006 that the Dow would drop to 4000 has got it right this morning/
Republicans never admit mistakes/
McCain-Palin are campaigning on redneck images/
Actually, I’m tired and don’t want to take apart your third post. But I think I could refute any one of those. They’d be more fun to discuss anyway than this kitchen-sink method of yours. Just pick one of the above and try to stay on topic with a connected rationale for it.
Sashal’s trying to make Neo’s comment section into a garbage heap. That’s not nice.
Today he blamed the current mess on “ineffective regulation”.
Every day he spreads propaganda about America, McCain, Palin, and the truth.
What does he get paid? I think I might need some of that.
Just pick one of the above and try to stay on topic with a connected rationale for it.
That’s not what propaganda agents need to do to propagate ideas and feelings across a broad spectrum audience. You need shock and awe to do that.
Folks,
Best thing I ever saw on TV. Some guy at CBS was interviewing the CEO of a Fortune 100 – maybe a Fortune 10 – about executive compensation. The guy rattle off the scope of things that he was responsible for. It was concise and precise. Took him about a minute to list all of them. His zinger – “I make less than Katie Couric”.
On the current economic mess – The two responsible for this mess are Charlie Rangel and Chris Dodd. If you disagree let’s hear from you. Better have a case though, I do not suffer fools gladly.
Regards
Regards
sachal: you (conveniently?) ignore the economy was BOOMING in 2006 when the esteemed Democrats took the House, and thus deeply share a very large dose of responsibility for the credit contraction that began in mid-2007.
It will serve you better to be factually correct than to be partisan. You might even profit from it financially.
With wealthy Republicans to loot, he doesn’t need to lower himself to such ethical standards, Tom.
You’re right, Ymar…as usual. But the lootables pool is shrinking; what’s a poor Dem to do?
Iraq, Georgia, and Afghanistan are always available. So is Iran, Russia, and Saudi Arabia if they need some auxiliary bribe money.
What will stoke the Dem hearts is not just higher taxes, Tom, it’s higher taxes on every nation on Earth. Collected by them.
If spending is for the good and social justice is conducted through wealth redistribution, who’s to say that Africa shouldn’t be redistributing their wealth to Pelosi in the US?
You need shock and awe to do that.
Followed by the thuggish Sheikh Paul Bremer III
Is it economy, or simply pricking of speculative bubble? The financial markets seem to be in turmoil when they are most detached from real economy. This is a perfect storm for Wall Street, but for the biggest world economy this may turn to be a storm in a glass of water.
The current crisis was the result of sub-prime morgage bubble. And what was the cause of these reckless lending money to those who should not be rated as trustworthy debtors? These remnants of New Deal, semi-socialist companies that held profits for themselves and dump risks and losses on taxpayers. The second cause – false accusations of racism in case they refuse give credits for black families, compising a lion share of sub-prime borrowers.
sashal:
The Democrats are in control of Congress. In fact Chris Dodd is chair of the Banking Committee and his only oversight was of the sweetheart loan he got from the people he was supposed to be watching.
And Obama has taken over $120,000 from these same lenders.
When Bush tried to reign in Freddie Mac and Fannie Mae, Democrats reacted the same way they did when he tried to reform social security…that is ours they said, hands off.
Well now it has hit the fan. In truth I think blame is useless, but Greenspan was around the longest and had the most control of the money supply.
But the Democrats are up to their butts in this too. They encouraged the practices that brought this about and now Obama is on it like a vulture on road kill. He is trying to use this crisis for his own political benefit. The man is a ghoul.
I have alse seen some comment that Clinton signing a fair housing law that compelled banks to lend to less credit worthy home buyers was the start of the sub prime market.
I think believing an economics degree will help solve the problem is as incorrect as believing, say, physicists would have developed household electricity. As well, economists got us into this mess, figuring out how to make a dime off a nickel, if at a steep national cost. And, government economists are more dubious than the average, like mules in a rut circling the well, pulling a load.
Greater free markets and the American people, if they believe they can keep what they earn, will fix the problem. More government and poorly educated economists cannot. Just a thought.