When I Need A Pick Me Up, by my friend Ryan King

Tuesday, October 7, 2008

I'm Askin' You 'Cause You Know About These Things...

(Title pinched from Whitney Houston's "How Will I Know?" Following article pinched from Robert Reich's Blog via my Childhood Bud with whom I never shared my Pakula's cakes with, because I don't read political blogs except Ned's and my Tribe's and Scott's and because I was an only child--in that order.)

The Meltdown (Part I)
via by Robert Reich on 10/6/08

Global capital markets have seized up. Confidence is evaporating. Put simply, no lender trusts any borrower to repay, fearing that that borrower won't be able to rely on anyone else to honor obligations. Even banks are hoarding cash, unwilling to lend to other banks. Everyone with any savings is heading for the hills -- for gold, for under the mattress, for wherever savings can be watched. We're witnessing a huge international bank run. We have not seen a global financial crisis on this scale since the 1930s.

What's happened? Put simply, the Bailout of All Bailouts has been a dud, at least so far. Most obviously, it hasn't done what it was intended to do -- reassure financial markets that the Treasury and the Fed would have enough money to handle any financial crisis.

So it's everyone and every institution -- and every country -- for itself. Several nations (Ireland, Greece, Germany) have basically guaranteed all deposits. As a result, global capital is moving their way. They're also thereby creating a new form of socialized capitalism. At the rate they're going, these nations will soon own and run their financial markets, and maybe a big chunk of the world's.

I fault Hank Paulson, first and foremost. He never succeeded in explaining to anyone what exactly he'll do with the bailout money -- how, for example, an auction to acquire mortgage-backed bad debt would work, and whether and to what extent he's planning to recapitalize the banking system. Even now, the American public has no idea what he's up to. Nor, for that matter, do many insiders.

Leadership isn't just about passing a big piece of legislation. It's about explaining and thereby gaining trust and confidence from a public -- including a global public -- that's otherwise afraid and confused. A credible and powerful explanation is necessary right now -- about where we've been, how we got into this mess, and how a particular plan (in this case, the bailout), will get us out of it. Yet Paulson has proven himself uniquely unable to explain anything to anyone. George W. Bush, for his part, is hopeless and hapless. Worse than a lame duck, he's a seriously disabled parakeet, with no remaining store of public trust. Ben Bernanke seems like an able fellow but his capacity to communicate is almost as bad as his predecessor's. Congressional leaders are too busy pointing fingers of blame to be capable of explaining much of anything and summoning confidence. And fewer than three weeks before a national election, both candidates are inevitably caught up in partisan wrangling. Obama does understand what's happening, and could calm global capital markets if he were already president. But he is not president as yet, nor even president-elect.

The leadership vacuum could not happen at a worse time. If credit markets remain frozen, we'll soon witness a huge round of business bankruptcies. We're in completely uncharted terrain

1 comment:

The Neighbor said...

Part of the problem is that the great numbers people of the world are not the great communicators of the world. And another part is that the average American is completely naive when it comes to numbers and how financial markets work. And financial markets are a convoluted mess owing to the smart numbers people trying to outsmart the smart legislative people who try to regulate them.

This is pretty much why the GOP favors deregulation - it encourages straightforward practices. But years of regulations have made it all a shadowy business, so much obscured in numbers tricks and complicated math.

I agree that confidence is key, and I am pretty confident that what we're seeing will not really kit like it did in the 1930's. We have some very stupid people in our world, but not as many uneducated as in the 1930's.

I personally think our worst case scenario will be a nationalization of the entire finance system, which will really piss off the foreign owners of some of it, and probably drive us into a small era of protectionism where we all buy American because of trade wars and international spite.

And the brightest of the bright will shine lights in all the dark corners and make it all understandable for the rest of us. And the backlash wi8ll result in openness and transparency, realism, and hopefully, a return to normalcy. Normalcy, for the record, is the 1950's and 1960's. This current phase resulted from the reaction to the 1970's and unpegging the dollar from anything of real worth. It might be interesting to see the dollar pegged to nationalized real estate holdings, which are worth far in excess of our gold reserves, I think.

I don't know. Interesting article though.