Best... Day... Ever

Yes, the Dow Jones average had its largest single-day point gain yesterday, with news of a “new bailout” that involves the government directly investing in various troubled banks. The Bush administration announced the plan yesterday, which involves $250 billion on top of the $700 billion already funneled to financial firms, as well as additional guarantees of bank transactions from the FDIC. Bush himself argued that the move is “essential so that the free market can continue to function,” though grumbling from some conservative allies suggested that the government might essentially be destroying the free market in order to save it. The markets gained back about a third of what they lost last week.

Of course, the untold story if you read US newspapers and websites is that the markets weren’t necessarily reacting to something the US government did… the markets these days are global, and the huge groundswell was already building through the day around the world. It began because European leaders agreed on their own bank protection plan, which the US plan basically copied. The Europeans had no compunctions on what they were doing, calling this a “re-nationalization.” The big winner appeared to be French President Nicolas Sarkozy, who managed to get the various interested parties to stop yelling at each other long enough to broker a deal.

The European leaders emphasized that “no bank will be allowed to fail,” and vaguely implied criticisms that the expensive US bailout was both late-arriving and ineffective. The French Financial Minister basically said that she would never have let Lehman Brothers fail on her watch. If you take a look at the history of the past couple decades, European nations have a varied history with nationalized banks, ranging from the catastrophe that was France’s governmental involvement with Credit Lyonnais to the unqualified success of the Swedish nationalization of its financial industry. However, this is different from those past experiences because it involves every EU nation rather than individual nations acting on their own. It seems to be what many economists were calling for all along and has certainly had the success in drawing a market reaction that the initial reveal of the so-called “Paulson Plan” did not.

One interesting aspect of this crisis may be the continued emergence of the EU as a modern superpower. Many in the United States still think of ourselves as the world’s only superpower, but that’s certainly not the case in an economic sense, and that may be the most important one. The EU and China have made massive strides in recent years, to the point where the EU economy may be smaller but better managed, and the Chinese economy is large enough for that nation to start running foreign policy based on monetary aide. I asked a week or so ago what the big change that comes out of the current financial crisis will be, and it may end up being American recognition of the EU as a collective power on the world stage.

The US Financial Crisis: It's Only Money

I wanted to write a thoughtful post about the current US “Financial Crisis.” It’s all the news wants to talk about these days. I found I didn’t quite have the understanding I wanted, and so I tried to do some research. This just made me feel like an idiot. You want to know the real reason no one in charge of anything did anything to stop what’s going on right now? It’s because those in the industry have filled the air with so much double talk and nonsensical weirdness that it’s impossible even for someone like me (who, not to brag, is a member of MENSA, and thus am not used to being completely befuddled by technical jibber-jabber) to make any sense of it.

The gist? All this appears to come from the “subprime mortgage market.” People took on way more debt than they could ever pay off in order to own their own home, because we’re supposed to have “an ownership society.” I think that may originally be Bush’s phrase. These people of course defaulted on their loans quite a bit of the time. Why they were given the credit in the first place, no one seems to be able to explain. Many of these homes were foreclosed. Other mortgages were picked up by finance firms, who through some strange bit of chicanery seemed to think they were worth something. No one can explain this part to me, either. Part of the reason they could do this was government deregulation that the Republicans have been pushing for years.

Now these firms are failing. Big insurance firms like AIG are failing too. The upshot is we’re theoretically on the verge of a spiral where it will become harder and harder to get credit, people will lose their homes, the stock market will plunge, and those whose retirements are based in the stock market will lose their money…

So the White House has decided that the solution is to use $700 Billion (along with a strange package of demands involving lack of oversight that, again, don’t make sense) that we don’t actually have to buy the “bad debt” that the financial firms apparently thought was worth something as a “bail out.” The obvious problem with this, besides the price tag, is the fact that all it does is perpetuate the status quo, which is how we got here…

I don’t want to give this topic more space than I think it deserves, because honestly I think it’s being overblown. A few times recently people have looked at me strange when I used the phrase “It’s only money.” I have trouble getting worked up over financial matters. In any case, this isn’t why I made this blog. But it feels like Bush wants to railroad us into something, like Iraq all over again, that makes no sense. I feel like I’m using that phrase a lot. At the very least, I need somebody to sit down and explain this to me, slowly, in words that have set definitions, before I agree to it. Congressmen say their offices are getting deluged with calls, and those calls are 90 to 1 against.

I can tell you one thing. The way to “prevent a financial panic” is not to go on television and tell us the sky is falling, the way the President did last night. One more thing that makes no sense.

John McCain Throws a Hail Mary

So, we find out John McCain is desperate. I didn't make this blog to be a political polemic, that wasn't really the point. But really, this is pretty much unheard of. Today he announced that he is suspending his campaign for President until the economic crisis is resolved. He wants to cancel the Presidential debate on Friday unless the proposed "bailout plan" (which I was originally planning on posting about) is passed, an eventuality that's looking increasingly unlikely (despite the White House's claims that it would be "unthinkable") since Congress has developed an inconvenient ability the past few days to think for itself. Obama's response?: "I think that one of the president's jobs will be to focus on more than one thing at once."

I don't really have a sense of what public reaction to this is going to be. The Debate Commission (theoretically unbiased, though notorious for excluding even vaguely-viable third-party candidates) says Friday's debate in Oxford, Mississippi (and why there, exactly?) will go on as scheduled. The McCain camp says it will not show up. President Bush went on TV a few minutes ago to say our "entire economy is at risk" because of this Wall Street business (the causes of that, as I mentioned, are probably another post). The proposed bailout (which both campaigns said tonight in a joint statement is "flawed") involves the Treasury Department and the only quasi-governmental Federal Reserve 700 Billion taxpayer dollars to such companies as AIG, Goldman Sachs, etc. in order to keep them remotely solvent. Some members of Congress (seemingly on both sides of the aisle) have balked at this for a variety of reasons, ranging from free-marketers who say government intervention in the economy is how we got into this mess (who are sort of right... if you look at it in a skewed way) to populists who believe that this would only "reward bad behavior" for overpaid CEOs, who would suffer no punishment for their gross mismanagement. And most prominently, $700 Billion is quite simply money we don't have when we're already grossly in debt.

I will try and post further updates on this situation as it develops. I personally believe this is McCain trying to manufacture what's known as an "October surprise" out of thin air, or thick air, anyway. The latest polls, for what they are, show Obama with a big lead in some key states and surprisingly pretty much tied in a few others that Republicans win most of the time, not to mention a lead nationally that is nearing double digit percentage points. In a third millenium election, that's a massive blowout. And the polls don't even take into account much of one of Obama's most solid voting blocks, voters under 26, because they only poll those with landlines. (i.e. if you only have a cell phone, presidential polls act like you don't exist).

McCain knows this. He's trying to change the game. I don't know if it'll work or not. It's probably worth a shot on his part, at any rate. Bush & Co. are trying the same fear-mongering tactics they used in the run-up to Iraq. Again, I'm not sure if it'll work... and the only reason I can even see for them to want to is because they're in deep with the Wall Street CEOs... but surely they're not that corrupt, are they? Oh, wait...

p.s. Not all our readers are (hopefully) American, so I thought I should explain the title... a Hail Mary's a play in American Football (the most complex strategy-based sport in the world, for my money, which is why I love it). More on THAT here: http://en.wikipedia.org/wiki/Hail_Mary_pass