The last three days have seen frightening, bewildering and undeniably grim news coming from the financial sector. There’s trouble there, in that “financial sector”, but other than that it is all very bad and is going to cost billions to solve even an educated layman is hard pressed to make sense of the particulars. It sounds like something from Star Trek: Captain, we’re receiving a distress signal from the Financial Sector. The Lehmans have liquidated and the Aigs are begging Starfleet for help!
Yesterday evening, Starfleet showed up to the tune of $85,000,000,000. The details are still sketchy, and when they do come out will be indecipherable to all but a small handful of people who will immediately being to disagree with each other over what it all means and whether or not it was a good idea. The rest of us will be left scratching our heads and feeling another invisible hand in our collective pocket. The federally brokered sale of Bear Stearns back in March was an unprecedented and hopefully one time event. Now we’re barely a week removed from the federal takeover of Fannie Mae and Freddie Mac, which no one seems able to put a definitive price tag on, and we’re going in even deeper. A potentially prescient paragraph in this morning’s lead New York Times article:
A major concern is that the A.I.G. rescue won’t be the last. At Tuesday night’s meeting lawmakers asked if there was any way of knowing if this would be the final major government intervention. Mr. Bernanke and Mr. Paulson said there was not. Indeed, the markets remain worried about the financial condition of major regional banks as well as that of Washington Mutual, the nation’s largest thrift.
This record bailout isn’t the first and it might not be the last but whatever else is going on the general public has been exposed as little more than a great mass of spectators. You may be up on your mortgage payment, behind on your mortgage payment or have no mortgage payment but unless you’re pretty high up in one of these firms or hang out with a lot of people who are your immediate connection to this story is as one way as a television program. The experience is both frustrating and frightening and those are two unpredictable things to do to an electorate less than fifty days from an election.
Whether or not any of this will have an effect on November 4th is an open question. As scary as it all sounds it may be too complex to really sink in; one thing’s for sure though, the general public perception of all this is that the rich people have run amok and need to be reformed. What form that takes, how substantive and how comprehensive it is, will in great part be determined at the ballot box. Since even the people who are supposed to understand this stuff seem to be in uncharted territory I’m not sure what the rest of us are supposed to think though.
On BBC radio yesterday Robert Reich called the Clinton-era repeal of Glass-Steagall a “mistake”. Unfortunately for ordinary economic mortals the Wikipedia entry for Glass-Steagall Act has disclaimers about the article requiring cleanup, lacking citations and having disputed neutrality. There simply is no quick way for a non-expert to understand these bankruptcies and federal bail outs on anything but the most superficial level. What I do know is that just about the only people who think the economy is going well these days are Republican convention delegates and the man they nominated. Everyone else thinks the economy is in the toilet and the events of the last two weeks are unlikely to make them feel any better.
I’m starting to feel like some tropical island peasant, the ground is shaking, everybody’s nervous, and the guys in the funny hats and robes keep taking more virgins up the mountain. But whatever they say when they come back down, that the volcano has been appeased or that we need more virgins, you can’t help but notice that they’re sweating as much as the rest of us. I don’t understand enough of the details to know whether or not putting a new set of guys in the robes will help, but the current ones are obviously not doing their jobs.
