If you follow my delicious bookmarks at all, you will have noticed that I’ve developed a bit of a macabre fascination with articles about the events that have come to be known as America’s Current Financial Crisis. Here’s the full list of those that I’ve considered significant for one reason or another over the past few days. They’re in no order, at this point, as I’m in a bit of an “information gathering” phase, reading through all these articles repeatedly to try and tease out the unifying threads.
I’ve quoted what I thought was a critical or key point in each article, though I change my mind as all this churns around in my head. As a teaser, you might pay particular attention to the articles from Open Secrets — that is, The Center for Responsive Politics — which will figure prominently in what I have to say. Open Secrets provides a look at the intersection of economics and politics that, as far as I know, is unlike any you’ll find anywhere else on the web.
- Bloomberg.com: Worldwide – “The market storm that brought down Lehman Brothers Holdings Inc., American International Group Inc. and other pillars of U.S. finance may have also blown holes in the portfolios of House Speaker Nancy Pelosi, Senator John Kerry and more than 50 other members of Congress…. Altogether, 56 senators and representatives had stakes in AIG, Lehman, Fannie Mae, Freddie Mac, Bear Stearns Cos. or IndyMac Bancorp Inc. — some of the biggest casualties of the market bloodbath — according to the Center for Responsive Politics….”
- Abroad, Bailout Is Seen as a Free Market Detour – NYTimes.com – “Is the United States no longer the global beacon of unfettered, free-market capitalism? In extending a last-minute $85 billion lifeline to American International Group, the troubled insurer, Washington has not only turned away from decades of rhetoric about the virtues of the free market and the dangers of government intervention, but it has also probably undercut future American efforts to promote such policies abroad…. ‘I fear the government has passed the point of no return,’ said Ron Chernow, a leading American financial historian. ‘We have the irony of a free-market administration doing things that the most liberal Democratic administration would never have been doing in it’s wildest dreams.’”
- Organic Market – Forbes.com – “The consensus is that Something Must Be Done to rein in financial markets. This consensus is part of a general theme among some pundits and economists that it’s time to give up the naïve faith that markets can solve every problem. We are told that markets have failed…. Yet much of the current chaos is the result of attempts to steer or control markets rather than let them be. Much of the chaos is the result of political failure.”
- Free Market To The Rescue – Forbes.com – “Although market ideas are today taking something of a beating, nothing like the 1930s fervor for central planning is in the air. For this reason alone, I am optimistic that we are not on the verge of a second Great Depression….. But in this optimistic account there’s a warning. If our confidence in free markets does come to be overwhelmed by a renewed, if utterly baseless, confidence in the central direction of the economy, then our economic prospects will once again truly be in a great depression.”
- Optimism Quickly Fading – “To ban short-selling of stocks is to short-circuit an important mechanism through which people share their knowledge and expectations with others. Banning a mechanism that better allows share prices to reflect the expectation that the underlying assets are not worth as much as current market prices suggest does nothing to change the underlying reality. Such a ban merely distorts knowledge of this reality.”
- SEC bans short-selling – Yahoo! News – “The Securities and Exchange Commission took the dramatic step early Friday of temporarily banning the routine practice of betting against company stocks…. The move, announced on the agency’s Web site, may well be unprecedented and a reflection of regulators’ concern about the widening scope of the financial crisis as entreaties come from all quarters to stem a swarm of short-selling.”
- Vast Bailout by U.S. Proposed in Bid to Stem Financial Crisis – NYTimes.com – “The head of the Treasury and the Federal Reserve began discussions on Thursday with Congressional leaders on what could become the biggest bailout in United States history….”
- Regulating away improvement – “The bailouts are getting bigger. The rescue of US mortgage giants Freddie-Mac and Fannie-Mae is hailed as the largest bailout in history. On our side of the Atlantic we saw the similar, but smaller, rescue of Northern Rock. All of these have common features. The companies concerned were nationalized, and their losses are now underwritten by taxpayers. Between them their rescues have engendered a culture of bailout,which says that the public has to be protected at all costs from the consequences of failure. It is almost as if there has been a collective loss of faith in capitalism and in its ability to take failures in its stride.”
- The Austrian Economists: Who Can Fix This? – “Government is NOT a corrective. More often than not, it is the source (as in this case) of our economic difficulties. No bailouts, eliminate regulations, certainly no nationalizations, no priming of the pump with easy money, just allow firms to be weeded out that made imprudent decisions, allow capital to be reallocated, and permit prices to adjust to the new market realities.”
- Economic View – Too Few Regulations? No, Just Ineffective Ones – NYTimes.com – “There is a misconception that President Bush’s years in office have been characterized by a hands-off approach to regulation. In large part, this myth stems from the rhetoric of the president and his appointees, who have emphasized the costly burdens that regulation places on business…. But the reality has been very different: continuing heavy regulation, with a growing loss of accountability and effectiveness. That’s dysfunctional governance, not laissez-faire…. In the meantime, if you hear a call for more regulation, without a clear explanation of why regulation failed in the past, beware. The odds are that we’ll get additional regulation but with even less accountability and even less focus on solving our very real economic problems.”
- OpenSecrets | Fannie Mae and Freddie Mac Bailed Out After Buying In – Capital Eye – “As economists and analysts try to sort out how giant mortgage buyers Fannie Mae and Freddie Mac ended up needing to be bailed out by the federal government this past weekend, here at CRP we can see part of the picture of why that solution won out over others. Both Fannie Mae and Freddie Mac are prolific political players, pouring millions of dollars into campaign contributions and lobbying, efforts that have resulted in keeping the two companies afloat as more Americans have defaulted on their mortgages.”
- Commentary: How to prevent the next Wall Street crisis – CNN.com – The author writes about several causes of the current U.S. financial crisis, concluding with: “The coup d’grace was the Iraq War, which contributed to soaring oil prices. Money that used to be spent on American goods now got diverted abroad. The Fed took seriously its responsibility to keep the economy going…. It did this by replacing the tech bubble with a new bubble, a housing bubble. Household savings plummeted to zero, to the lowest level since the Great Depression. It managed to sustain the economy, but the way it did it was shortsighted: America was living on borrowed money and borrowed time.”
- How Paulson Would Save Fannie Mae – WSJ.com – “Recent statements by Barney Frank (D., Mass.), the chairman of the House Financial Services Committee, and Chuck Schumer (D., N.Y.), a powerful member of the Senate Banking Committee, make clear that Congress will never let them be privatized, broken up, slimmed down, nationalized or any of the other options hopeful reformers are putting forth today. Fannie and Freddie in their current form are just what Congress wants: an inexhaustible source of campaign contributions and funds for favored groups.”
- OpenSecrets | Wall Street Shake-up Connects to Washington Through Contributions, Personal Investments – Capital Eye – “Wall Street’s grim news has plenty of people worried about their pocketbooks. Lawmakers are among them, not only concerned with how to boost the economy but with their own personal finances tied to companies that are struggling. The richest members of Congress seem to be the most invested in the companies at the center of the Wall Street shake-up…. Of all of the companies facing major transitions, lawmakers owned the most stock in American International Group (AIG), the nation’s largest insurer, which has asked the Federal Reserve for emergency funding as it faces financial hardships. Twenty-seven lawmakers owned stock in AIG last year, worth between $6.4 million and $20 million…..”
I’ll have more on all this shortly, with a longish-post (more like a small book) where I try to make some sense out of what I’ve read in these articles. Until then, as a thought for today, listen to the lyrics of this 1986 performance of “Is This the World We Created,” by Freddie Mercury and Queen.
- Is this the world we created?
We made it on or own.
Is this the world we devastated
Right to the bone.
If there’s a god up in the sky
What must he think of what we’ve done
To all that he created….