Tuesday, September 30, 2008

Panic grips world's markets.

When President Bush told us that an urgent financial package was needed to prevent the entire collapse of the American financial system, there were very few of us who were happy with the idea that, once again, profit was private but any financial loss became public debt.

However, angry as the idea of bailing out Wall Street made me, there were people who knew far more about economics than I did arguing that the choice was this or the complete financial collapse of the markets. In my mind I came to the conclusion that it was better to save the markets and vow that no company should ever again be allowed to become "too big to fail".

Both the presidential candidates delivered the same message with McCain going further than Barack Obama by suspending his campaign and flying to Washington to make sure the deal went through.

Yesterday the Democratic caucus delivered 66% of it's members to support a Republican bill and the Republicans, despite McCain's dramatic dash to Washington, delivered only 35% of it's members. 140 Democrats voted for the bill, despite it's unpopularity amongst the electorate, with only 65 Republicans also putting their necks on the line.

Astonishingly, despite the fact that this was a Republican bill, pushed by a Republican president, voted down by a majority of Republicans, that same party sought to push the failure of the bill to pass on to the heads of Democrats.

As recriminations began, Republican leaders blamed the Democratic speaker of the House, Nancy Pelosi, for framing the crisis as a consequence of recklessness by the Bush administration. "The speaker had to give a partisan voice that poisoned our conference," said Republican leader John Boehner. This drew ridicule from Democrats. Barney Frank, chairman of the House financial services committee, said: "Somebody hurt my feelings so I'll punish the country? That's hardly plausible."

Don't get me wrong, I was only willing to support the bill once oversight had been inserted into it. I had no idea, and as I write this I still have no idea, whether or not the entire $700 billion would ever have had to be used, but the important thing we were told was that the markets needed to see urgent action to prevent imminent financial collapse.

At that moment, appalling as bailing out these people was to me, I thought that we couldn't take the risk that the markets might collapse and that we should put a clothes peg over our noses and vote for this thing. With oversight assured, we would only see the spending of what was necessary to calm the markets and avoid financial Armageddon.

The Republicans, fearful of voting for an unpopular bail out so soon to an election, have put their re-election in front of the country's good, despite the dramatic intervention of McCain into the middle of this negotiation.

The markets have reacted swiftly.

The Mortgage Bankers' Association reacted by warning of job losses as banks curtail credit to small businesses. Larry Fink, chairman of a leading US investment management firm, BlackRock, said critics had been wrong to characterise the plan as a bail-out of Wall Street. "This is a bail-out of Main Street," he said. "Banks have no ability to lend at the moment because their balance sheets are so gummed up."

The financial fallout was swift and brutal. Shares in leading US banks slumped: Bank of America by 16%, Citigroup by 12% and Goldman Sachs by 11%. Oil plunged by $10 a barrel to just over $96 as traders bet on a slump reducing the need for fuel. The dollar fell sharply and the price of gold surged close to record territory.

Peter Morici, professor of business at the University of Maryland, said: "Things are going to get so bad something will have to be done in the next few weeks. Banks will sink, credit markets will seize, the economy will go into something much worse than a recession."

When I listen to every complaint that the Republicans make about this bill, their main objection is that this is "socialism". That is what they object to. Democrats who object tend to do so because they question whether or not this intervention will work or whether or not it is necessary. Republicans fear that this will work and fear that this is necessary because it undermines their entire ideological belief system.

To that end they really are prepared to take the risk that the entire financial system might collapse, despite McCain's dramatic intervention to steer the bill through.

McCain's intervention is now revealed as the empty political gesturing which we always suspected it was and those same Republicans who worried about losing their seats now face even more weeks with the economy at the forefront of the American electorate's minds.

It is to that end that the Republicans yesterday sought to feign outrage over Nancy Pelosi's comments in a pathetic attempt to duck responsibility for whatever happens next.

Make no mistake, the Republicans voted down this bill and they are now going to make an awful lot of noise in an attempt to disguise that brutal fact.

Neither Bush nor McCain could persuade them to put country before self. The Democrats delivered, under threat of dire financial consequences, 66% of their caucus to vote for a bill which appals all of us, but which we were told was a necessity to avoid financial meltdown.

I would be delighted if the threats turn out to be overstated, but - lacking the financial knowledge to know whether or not that is true - I would choose not to take the risk, deeming it, in the same way as we call for action on global warming, better to find out that I was wrong further down the road than to wait for the disaster to hit us before I had got myself up to speed.

The Republicans made the opposite call. And, having been too cowardly to vote for an unpopular bill which we were told was needed, they are now going to try and push the blame for that towards the Democrats. They must not be allowed to do that.


Even David Brooks gets it:

House Republicans led the way and will get most of the blame. It has been interesting to watch them on their single-minded mission to destroy the Republican Party. Not long ago, they led an anti-immigration crusade that drove away Hispanic support. Then, too, they listened to the loudest and angriest voices in their party, oblivious to the complicated anxieties that lurk in most American minds.

Now they have once again confused talk radio with reality. If this economy slides, they will go down in history as the Smoot-Hawleys of the 21st century. With this vote, they’ve taken responsibility for this economy, and they will be held accountable. The short-term blows will fall on John McCain, the long-term stress on the existence of the G.O.P. as we know it.


Taking partisanship to new levels, McCain says it's not the time to attach blame; but that he blames Obama.


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