pageok
pageok
pageok
Good Advice for John McCain, and More:

Jennifer Rubin has some. I suspect that no matter how good a campaign McCain runs from now on, he's doomed unless the economic news suddenly takes a turn for the better.

Speaking of which, I have to give some credit to the powers-that-be. I remember in 1988, knowledgeable observers, but not the general public, were aware that the Savings and Loan crisis loomed, but no major figures in either party would talk about it, for fear of the political consequences. At least at the time, pundits suggested that putting off dealing with the crisis cost the nation tens of billions of dollars.

I don't know if it was even possible for Paulson et al. to try to cover up or paper over the extent of the crisis until after the elections, but, if it was, they certainly didn't try to do so. I'm not confident that the solutions at hand will work, at least without causing an inflationary backlash, but surely better to start dealing with the situation now than in January.

Finally, is there something fundamentally wrong with our banking system? Or is there something fundamentally wrong with the way we regulate (or don't regulate) financial institutions? Or perhaps the world's central banks are a lot less able to figure out how to manage the money supply than we think, sending false signals resulting in bubbles that in turn result in crashes? Or all three?

It seems that even in the U.S., we can't go more than a few years without a banking crisis of some type or other. Just within my memory, we had the crisis during the Reagan Administration of banks that made bad loans to bankrupt Third World countries, the S&L crisis, the threat of a financial system meltdown in 1998, and now the mother of all banking crises. And there have been other banking crises in other nations periodically as well, even in Japan, a country known for its conservatism (in a nonpolitical sense).

byomtov (mail):
From Rubin's article:

McCain is the only alternative to excessive, blinding partisanship which grips Washington. Obama learned in Chicago to put party above country and self above all else.

Is it possible to read this without laughing out loud? McCain has thrown away every principle he claims to hold, every notion of personal honor and decency, in an effort to win the Presidency. He hired the very people who slimed him eight years ago to slime Obama. It is hard to think of any political figure who went from being widely respected to being a dishonest, vicious, partisan so quickly.

And Rubin thinks it's Obama who puts himself above country?
10.11.2008 10:20pm
Oren:

Or is there something fundamentally wrong with the way we regulate (or don't regulate) financial institutions?

The lack of transparency in the CDS market was a serious problem. In the next few months, we will see an exchange/clearing house for CDS which will go a long way towards getting a better picture of where we stand.
10.11.2008 10:22pm
Dan Weber (www):
Finally, is there something fundamentally wrong with our banking system? Or is there something fundamentally wrong with the way we regulate (or don't regulate) financial institutions?

They borrow short and lend long. As has been talked about on Econlog over the past week, that's really dangerous.
10.11.2008 10:30pm
JohnnyHorizon (mail):
perhaps we're too stupid as individuals and as corporate structures to react rationally in such a complex marketplace as we have created.
10.11.2008 10:34pm
Pashley (mail):
To echo Oren, the financial "system" is sound. There is instead something greatly amiss in our evaluation of financial risk. 1) it leads our financial actors to create financial transactions that are more volatile than imagined, and, sadly 2) has our politicans take actions in ways that are at best ineffectual, at worse harming, to our country's wealth. This would be in effect Hayek's revenge; having ridden into a storm, the best action is to lash one's self to the mast and ride the storm out.

The solution is to freeze the initiative of each class; no new financial instruments from the markets, no new intervention into the markets by the politicians. The actions of each are inferior and more damaging to our wealth than the collective wisdom of the markets. Each makes decisions over their head to the harm of society.
10.11.2008 10:37pm
Doc W (mail):
Yes there's something fundamentally wrong with our banking system, namely political interventionism. The Fed is right now sowing the seeds of the next credit bubble, just as it did in the 2001-04 time frame with radical easy money policies. Then there's the pressure on banks to lend to people regardless of whether they are likely to pay it back.
10.11.2008 10:38pm
Pashley (mail):
I'm not willing to condemn the initial actions of the political class. Politicians do what they have always done, send wealth and power to their constituents. In economic terms, politicians probably will always be burdens on the work of the free market. If the politicians render a particular market unprofitable, the economic actors have a duty to get out of the market.

Does doesn't excuse them from upending the ship in a storm.
10.11.2008 10:55pm
Doc W (mail):
Pashley,

Quite simply, the politicians are the ones sinking the ship. They don't send any wealth to their constituents that they didn't rob from them first. They "send power to their constituents?" I haven't any idea what you mean.

One can always argue, of course, that people get the politics they deserve, and given the sad cases that have won their parties' nominations, it's a plausible argument.
10.11.2008 11:08pm
Jerry F:
"I don't know if it was even possible for Paulson et al. to try to cover up or paper over the extent of the crisis until after the elections, but, if it was, they certainly didn't try to do so. I'm not confident that the solutions at hand will work, at least without causing an inflationary backlash, but surely better to start dealing with the situation now than in January."

At the risk of sounding like I am a partisan, sadly, this statement is probably wrong. Assuming Paulson et al. could have been able to cover up the extent of the crisis, I would think that the expected harm to the country of raising Obama's change of victory from 50% to 90% is greater than the expected harm of postponing dealing with the crisis by two months.
10.11.2008 11:12pm
Stash:
My argument is that it is inexperienced markets. That is, both the S&L crisis and this one happened when investors moved into new instruments and investments that were not fully understood by them. (I am not familiar enough with the foreign loan crisis, or Japanese bank crisis to suggest the same). The S&L crisis occurred after the restrictions on S&L investments--which had pretty much been limited to mortgages--were removed. S&L's went into a whole series of new business lines which they knew nothing about. Similarly, we have read much about how the subprime business was seriously misunderstood, along with some possible help from rating agencies that should have known better. I also remember quite a few banks/investors getting into trouble when interest rate derivatives were new.

I deal regularly with heavily regulated industry and one problem I find is that "regulation psychology" is bad when the industry has to deal with an unregulated part of the business. What I mean is that executives in a regulated industry are so used to conforming to, living with, resenting, or trying to get around regulations, that when they come to a regulation-free zone, they think that means there are no rules at all. With the regulations in place, there was no need to learn the prudence or honesty the rules were meant to enforce. Without them, businesses need time to discover, and, I am afraid, experience the value of the underlying purposes outside of the one-size-fits-all answer of the regulations. There is a reason corporations focus on their core business, i.e., it is what they know best how to do. Regulated businesses know how to operate in a regulated environment. I think they are often at sea in an unregulated one.

One analogy I can think of is the difficulty nations with no history of democratic rule sometimes have adjusting to and implementing the notion. Or just look at the chaos in the Russian market at the end of communism. Or a college kid away from home for the first time who has to get a sick a couple times to learn responsible drinking (I know I did).

The market works when there is good information. But when there is no experience to properly evaluate even good information, it is no more useful than a prospectus to an illiterate. This over-states, but makes my point.

Nobody I know ever learned to ride a bike with the training wheels on. You have to fall a couple times before you get the hang of it. Market regulations, at least in the ideal post-depression sense, were the permanent training wheels designed to prevent dangerous falls. Get on a bike without the wheels, and sometimes the market will need some time to educate itself about how not to fall on its own. While I recognize that the current meltdown has many causes and misjudgments galore, I cannot help but think this is a contributing factor to the S&L crisis and this one.
10.11.2008 11:16pm
Mike& (mail):
I'm not confident that the solutions at hand will work, at least without causing an inflationary backlash

Why? Do you think the interventions will so unfreeze the plumbing that too much money will flow through the pipes?

It seems most are concerned with deflation. So I'd like to hear why you fear otherwise.
10.11.2008 11:59pm
Gabriel McCall (mail):
Finally, is there something fundamentally wrong with our banking system? Or is there something fundamentally wrong with the way we regulate (or don't regulate) financial institutions? Or perhaps the world's central banks are a lot less able to figure out how to manage the money supply than we think, sending false signals resulting in bubbles that in turn result in crashes? Or all three?


If you're really interested in the answers to these questions, try reading some Austrian School economics. Mises, Rothbard, and Hayek in particular. They'd answer "yes" to all three questions.

The insight Hayek is best known for is the idea that correct economic decisionmaking requires more information than any one person or small group of people can possibly collect. That the right economic choices for a butcher in Chicago require information that only he is likely to be in a position to acquire, and that his situation is sufficiently different from that of a butcher in Detroit that it's impossible to do economic planning from any central agency which adequately accounts for the differences between their situations.

Hayek also wrote that the only way for central economic planning to account for those differences is to try to eliminate them, meaning that attempts at economic control must inevitably lead to greater social control as well. This is the central thesis of his work "The Road To Serfdom".

So yes: there is something fundamentally wrong with our banking system, in that the entire point of a central bank is market distortion away from what the markets would do on their own, and to the extent that the central bank distorts the market it leads to misallocation of resources and greater and greater malinvestment requiring more and more drastic distortion to correct for until it's impossible to correct for any further any pyrrhically expensive to allow to recover. And yes: there's something fundamentally wrong with the way we regulate our banks, in that any regulation with the effect or intent of shaping or redirecting economic activity, as opposed to the mere prevention of fraud, leads inevitably to greater and greater malinvestment and more and more regulation to try to fix the problems which simply makes the problems worse. And yes, one of the main causes of all these problems is that central banks can't possibly have enough information to make economic decisions as well as the people who ought to be making those decisons for themselves in a free market.

So, short version: read some Hayek!
10.12.2008 12:00am
A. Zarkov (mail):
Both candidates fail to recognize the root cause of our current economic crisis. (Notice I say "economic" and not "financial.") The excessive growth of the financial sector and the replacement of manufacturing by finance. Thirty years ago finance was about 12% of GDP and manufacturing was about 25%. Today those ratios are almost exactly reversed. But people still want the fruits of manufacturing so we borrow and import the goods we can no longer make. This is a prescription for an eventual economic crisis.

Iceland provides a good example of how excessive reliance on finance (an unproductive activity) can ruin an economy.
Iceland's prime minister told his countrymen that they would have to fall back on the resources of land and sea. Fishermen say they believe the government will raise cod quotas to goose the business. This week, Iceland nationalized the three banks. The prime minister said the "fairy tale" of banking was over.

It has been "slightly easier in the past couple of months" to lure back workers who fled fishing for the boom in home construction -- an offshoot of the easy-credit days, says Eggert Gudmundsson, chief executive of HB Grandi, Iceland's biggest fishing company.
Sound familar? I'm not say that the US is just like Iceland, but we have certainly drifted in that direction. The lesson for the US is clear. Less finance, less real estate, less consumption and more savings, investment and production. Unfortunately neither candidate is going to level with the American people because they are not yet prepared to swallow the bitter pill. But they will.
10.12.2008 12:11am
Voorhies (mail):
Waves happen. Cycles happens. A complete science of Mass psychology awaits our descendants. Had we not been distracted by one hundred years of studying 'class struggles' we would be having an entirely different conversation;and probably a productive response.
10.12.2008 12:12am
SenatorX (mail):
I second everything Gabriel McCall said. The world would be a better place if The Road to Serfdom was required reading. An easy read which clearly and powerfully spells out the failures of central planning(and central banking).
10.12.2008 12:37am
EricPWJohnson (mail):
All banking is inherently risky. Who out there really understands the economy and has the full knowedge of the interactions of a multicultural trading world in real time to be a force in advocating realistic regulations?

Inter market trades are at an all time high.

The one factor I see, in my very FINITE wisdom is lowering interest rates below 5/6% forces institutions who would rather NOT trade in the markets to be forced to do so.
10.12.2008 12:58am
Obvious (mail):
McCain lost the election (and I can't say I'm unhappy about it) two weeks ago when he did not distinguish himself from both Obama and Bush by opposing the bailout. Even if he didn't think opposition was the best economic move (and I think it would have been, and in any case he is so ignorant of economics it's hard to believe he has a strong opinion on the matter), it was so clearly the only political move leading to checkmate that he was extremely foolish not to do so.

One can only imagine the McCain ads that could be running now: "Wall St. Fat Cats want $700 BILLION of YOUR money. And Bush and Obama want to give it to them. Only McCain believes tax-payers shouldn't be on the hook for Wall Street's mistakes. Don't continue to accept Bush-Obama policies. Vote McCain for Change."

The sweet irony alone would have been worth risking the economy for...
10.12.2008 1:26am
David Warner:
"Is it possible to read this without laughing out loud?"

Yes. I thought it was a hell of an article. Better hope Petraeus doesn't pick Rubin as a running mate in '12, or it could be a one-term presidency.

;-)
10.12.2008 1:36am
Justin (mail):
I think Jennifer Rubin's article was pretty awful, it's based on the fallacy that people would think exactly like you if you just explained it to them. Unfortunately, the people are not all partisan Republicans willing to give McCain every benefit of the doubt and cast the worst aspersions on Obama. To a large degree, McCain has done most of this stuff, and the other stuff he hasn't done is stupid. Obama = Hoover? Obama would be a world politics joke? Only the most gullible four year old or partisan Republican believes that nonsense, and it'd look stupid, stupid, stupid.
10.12.2008 2:18am
highway61:
Similar to Justin's point, the referenced article reads like an instruction manual for convincing Limbaugh listeners to vote for McCain. Unless they are the ones McCain needs to swing the election, the advice won't help much.
10.12.2008 3:27am
Alexia:

I suspect that no matter how good a campaign McCain runs from now on, he's doomed unless the economic news suddenly takes a turn for the better.


I thought he was doomed before New Hampshire...
10.12.2008 3:53am
Alexia:

Finally, is there something fundamentally wrong with our banking system?


Uh, yeah. We are out of so much money we are even out of debt. That's one problem.

The cause of that problem with the banking system is that men think they can defy the simplest laws of economics.

Bernanke wouldn't let interest rise, and even cut them every time the market dipped. Price controls create shortages. Credit flowed too freely, and we ran out of credit.

In a free market, we would have had several small corrections over the years. This is a lid boiling off a pot.
10.12.2008 4:00am
EH (mail):
OK, we're starting to see more of these "McCain's Magic Bullet" advice columns since a week ago, probably since the last debate. Thing is, does anybody think McCain will just change course like people are suggesting? I mean, the guy's malleable, but that would be unprecedented. I'd call him Yogi McCain forevermore if that happened.

I think the smart money is in predicting what McCain's next blunder will be. That'd be a hell of a drinking game.
10.12.2008 4:21am
epeeist:
Re "Obvious": "Even if he didn't think opposition was the best economic move (and I think it would have been, and in any case he is so ignorant of economics it's hard to believe he has a strong opinion on the matter), it was so clearly the only political move leading to checkmate that he was extremely foolish not to do so."

You're saying that he should have opposed it even if he thought it was wrong to gain political points and was foolish not to? So you WANT politicians to do what they believe to be wrong to win elections even if they think doing the wrong thing will ruin the economy?

Re "David Bernstein": "Finally, is there something fundamentally wrong with our banking system? Or is there something fundamentally wrong with the way we regulate (or don't regulate) financial institutions?"

I agree with the political interventionism point of "Doc W". I am not an economist, so this is a highly inexpert opinion, but I see largely laissez-faire economic/banking systems working (government intervention to prevent fraud etc. i.e. preserve "fairness") or state-controlled (tons of government intervention) systems working, but not a hybrid. It seems to have been laissez-faire from the standpoint of financial institutions could do what they wanted, except for government intervention to encourage bad loans (Fannie Mae/Freddie Mac) or protect bad lenders without adequate oversight. My preference is more libertarian (lack of excessive government intrustion), but if the government's going to meddle, at least impose regulatory safeguards to avoid a "worst of both worlds" phenomenon.
10.12.2008 4:22am
BruceM (mail) (www):
McCain's not doomed no matter what the polls say. Come election day, in the privacy of the voting booth, a large portion of American voters are going to say to themselves "I'm not going to vote for a nigger for president." And they'll vote for McCain. They said they'd vote Obama, and they'll tell people they did vote for Obama. It's so sad and unfortunate for America, but this is the scenario I foresee come election day.

So the polls going into the election will have Obama ahead. The exit polls will have Obama ahead. But once the votes are counted, McCain will win by a sizeable amount. God I hope I'm wrong, but I think my cynicism is well-placed here, though I concede it may be skewed living in the south.

a majority of voters will tell people they voted for Obama, and there will be all sorts of finger pointing and allegations of vote fraud (Diebold machines for McCain). But deep down inside, they just couldn't bring themselves to vote for a black man.

In the polls I've seen, around 6% of people will actually admit to another human being that they won't vote for a black president. Surely the % of people who will lie about their willingness to vote for a black president is much higher than 6%, whatever it may be.

I sure hope I'm wrong. But I fear all McCain has to do to win the election is stay white.
10.12.2008 4:32am
Splunge:
I think Stash and McCall nail it, Bernstein.

I dunno if there's something Fundamentally Wrong about our banking system, but I do think there's something Fundamentally Wrong in the behaviour of our cognitive elites, who look at the vagaries of bad luck and chance and the imperfections of human judgment and say all too routinely there must be something Fundamentally Wrong with this system -- let's throw out all our hard-earned empirical experience and redesign it from the ground up.
10.12.2008 5:32am
Modus Ponens:
It's hilarious listening to Libertarians address a market meltdown of this magnitude.

The rhetoric of deregulation and a right to bear arms can only take you so far, boys.
10.12.2008 7:12am
byomtov (mail):
There is something wrong with a system where private firms are allowed to do things that are enormously profitable when they succeed but damage the broad economy when they fail. In other words, when firms are allowed to impose part of their risk on third parties they will take on excess risk.

I am not talking about the moral hazard issue of bailouts, etc. I am talking about the general economic consequences of the failure of large financial institutions like Bear Stearns, Lehmann, etc. Our system is a complex interconnected web. I see no easy way to isolate the consequences of the failure of individual firms, but I think that's the issue we need to understand.
10.12.2008 9:49am
The River Temoc (mail):
McCain lost the election two weeks ago when he did not distinguish himself from both Obama and Bush by opposing the bailout. Even if he didn't think opposition was the best economic move, it was so clearly the only political move leading to checkmate that he was extremely foolish not to do so.

John McCain is a patriot. I believe that McCain considered the very calculus you present above - and that he rejected it, because at the end of the day, he knew that some kind of rescue plan was necessary. ("Wall Street versus Main Street" is completely a false dichotomy, after all.) And he chose to go along with the bailout for the same reason he continued to favor the Iraq war at the height of its unpopularity in 2006: McCain would rather lose an election than lose the economy.

I believe that the financial crisis is essentially to the Democrats what 9/11 was to the Republican: a six-sigma event that nearly guarantees them the election. And I, personally, have decided to support Obama. But McCain like his hero Teddy Roosevelt in 1912, McCain will go down in history as one of the better public servants who, in a different place and time, might have captured the brass ring.
10.12.2008 10:30am
Tom Perkins (mail):

Come election day, in the privacy of the voting booth, a large portion of American voters are going to say to themselves "I'm not going to vote for a nigger for president." And they'll vote for McCain.


Yep. I think you could be right. And they're the Democrats.


There is something wrong with a system where private firms are allowed to do things that are enormously profitable when they succeed but damage the broad economy when they fail.


Yep. You're definitely right there. It was the fedgov implying they'd bail out the FM's and the Dems saying for the last 8 years running that the only thing wrong with those institutions is that they should lend more money to minorities who couldn't pay it back.

There's a trend here.

The Democratic Party hasn't had a new idea since the 1930's or a good idea since the 1830's.

Yours, TDP, ml, msl, &pfpp
10.12.2008 11:04am
JosephSlater (mail):
BruceM:

Respectfully, I believe that you're wrong. Do you really think 6% of people are telling COMPUTER RECORDINGS that are used in a number of these polls that they will vote for Obama when they really intend to vote for McCain? Because, um, they are afraid the COMPUTER RECORDINGS will think they are racist? I don't even buy that for responses to human pollsters (who the subject doesn't know, never sees, and will never have any other contact with) on phones.

It's also just as likely there will be a "reverse Bradley" effect -- folks in communities where being "for the black guy" isn't so popular, who won't admit they are for Obama but really will vote for him

There hasn't been much evidence of any Bradley effect in any election in some time. Frankly, the media (and a number of Republican/conservative talking heads) are making this an issue because it's the only way the election can, at this point, seem close. The media wants people to think it's close so they can market election news. The truth, however, is that while the election isn't over, Obama has a very large and very real lead.
10.12.2008 11:18am
Doc W (mail):
Modus Ponens: Care to elaborate substantively? Or try?

The Fed pursues radical easy-money in '01-'04 and we get a credit bubble. Banks are pressured (by the feds) to lend to people who can't pay up and we get a bunch of bad debt. These are clear and tangible mechanisms by which the government was responsible for the market meltdown. What do you offer, beyond an empty sneer?

As for the right to bear arms...well, a long-haired, hippy-ish, Obama-voter friend of mine who runs a coffee shop says he's getting a pistol if this turns into a depression.
10.12.2008 11:44am
byomtov (mail):
I recall reading that the Corker-Ford TN Senate race in 2006 came out very close to the way the late polls predicted. So maybe all this "Bradley effect" business is overblown.

It was the fedgov implying they'd bail out the FM's and the Dems saying for the last 8 years running that the only thing wrong with those institutions is that they should lend more money to minorities who couldn't pay it back.

I see you read your RNC emails carefully.
10.12.2008 12:40pm
Steve2:
Is there something fundamentally wrong with our banking system? Yes, there absolutely is, and Stash and Pashley were hitting on it: too many financial instruments that never should have been allowed to exist. You want a magic bullet to prevent future financial-sector meltdowns? That solution's obvious: "No financial instruments without a strong basis in reality." Another way of stating it?

"No derivative instruments ever."
10.12.2008 12:42pm
Mark Rockwell (mail):

"No derivative instruments ever."


And what of the substantial value those instruments impart on the market—hedging risks and such. Is dropping those benefits worth the gain in stability?

It seems to me that the crux of the problem is that people behave differently when the group thinks, than when they are thinking alone, in isolation. And the entire point of regulation is that we think about it in isolation, so when the group starts thinking, we don't hurt ourselves—again.
10.12.2008 1:17pm
Daryl Herbert (www):
I'm no economist, but it seems to me the fundamental failure was allowing risky investments to be rated as AAA, or otherwise rated as safe investments.

If the ratings had accurately reflected the risk, we wouldn't be in this mess.

That's my layman's understanding of it.

Also, it didn't help that Barack Obama made phony accusations of racism against Citibank, to force them to make more loans to unqualified people. And it didn't help that Dems in Congress consistently pushed to increase Fannie and Freddie's activities while blocking oversight. Thank you, Barack Obama and Barney Frank, for trashing our economy.
10.12.2008 1:21pm
Andy Freeman (mail):
> Or is there something fundamentally wrong with the way we regulate (or don't regulate) financial institutions?

Yes there is. We try to reduce the frequency of failure. However, in doing so, we increase the cost and scope of failure even more.

We'd be much better off going the other way. For one, diversification reduces the effects of independent failures, but the more that is connected (as it is with regulation), the harder it is to diversify.
10.12.2008 1:22pm
Steve2:

And what of the substantial value those instruments impart on the market—hedging risks and such. Is dropping those benefits worth the gain in stability?


I don't think those benefits are real. Their purported value is based on transactions in which money is exchanged neither for good nor service nor collateral-and-ability-backed promise of repayment with interest. I don't give much credence to the Ron Paul-crowd's complaints about "fiat currency", but this... this is "fiat product". Whatever benefits they actually impart are minor at best, and so yes, axing them is certainly worth the gain in stability and legitimacy.
10.12.2008 1:30pm
Fub:
Steve2 wrote at 10.12.2008 11:42am:
"No derivative instruments ever."
That would eliminate most commerce since the invention of contracts, and certainly all commerce since the invention or paper money.
10.12.2008 2:20pm
BruceM (mail) (www):
JosephSlater I hope I am wrong about this. I really, really do, more than anything. There very well could be the reverse Bradley effect you mention, but I don't think it will overcome long-ingrained racism. People are shallow and petty and will vote themselves into ruin out of spite.

But I sure hope I'm completely wrong and Obama wins by a sizeable majority.
10.12.2008 5:52pm
geokstr:
"...to cover up or paper over the extent of the crisis until after the elections..."

Perhaps not. I'm not a conspiracy nut, but to me the perfect timing of this whole financial "crisis" still stinks to high heaven.

Obama is a disciple of Saul Alinsky, the 1960's Marxist radical, who preached playing on the guilt of the "oppressors", forcing them to give so much that it eventually overloads the system, and then seizing power in the resulting crisis. Obama admits being a student of Alinsky's tactics, and taught them to ACORN was he was a "community organizer", another creation of Alinsky's that for him was nothing more than a euphemism for Marxist revolution.

The current "crisis" was caused in large part by pandering to Alinsky's followers like ACORN, pushing social engineering to unheard of heights by promising home ownership to just about everyone, including the homeless, regardless of means. Without Fannie/Freddie to buy up all the risky loans from the mortgage originators, the Community Reinvestment Act can't force them make them in the first place.

The collapse of the real estate bubble has been building for decades, but it started to get out of control in the 1990's when ACORN, represented by Obama himself, forced the government to expand the role of Fannie and Freddie in buying risky mortgage loans. It was fueled further by democrats like Frank, Dodd and Shumer, who resisted curbing the two giant GSE's, and unfortunately, aided and abetted by weak and pandering republicans.

Real estate values had to collapse, but why precisely now, when one of Alinsky disciples, in fact The One who had helped fuel the instabilty, was running for president? If it happens 6 months ago, the political fallout is probably over by now, if it happens 6 months later, there is no effect on the election.

Instead it happens 8 weeks before the election, with no time to consider alternatives to essentially a huge expansion of government into the entire financial industry. Dodd, Frank, and through them Obama, had to be aware that the system was ready to go for some time. So what actually caused Paulson to have to come forward precisely when he did?

I have google extensively without success looking for the flash point that caused this to break at this precise moment - no run on the banks, no negative audit report, no leak of cataclysmic earnings news, nothing else that I can determine either. If someone out there knows the reason, I would love to hear it.

George Soros is widely credited with precipitating the near-crash of the British Pound in 1992, and he made a billion dollars overnight, just by shorting 10 billion of them. Could there have been a deliberate effort to time this collapse to influence this election?

If you recall, fortuitous events helped Obama in every election he won. In his race for state senator, he had all five opponents disqualified and ran unopposed. When he ran for the Senate, someone in Chicago (what else is new) got the legally sealed divorce records leaked for both his primary opponent and a strong republican challenger, so he essentially ran unopposed there to. In the only race where he was not able to pull any dirty tricks, for the congress, he lost.

Either this guy really does have the angels on his side, or this was Chicago machine politics gone national, pulling off the mother of all October surprises.
10.12.2008 6:41pm
Pauldom:

"I don't know if it was even possible for Paulson et al. to try to cover up or paper over the extent of the crisis until after the elections, but, if it was, they certainly didn't try to do so."

We don't know enough about the crisis to assume they didn't try. For all we know, Paulson did try to cover up/paper over the crisis until it became too hot to control. Just his bad luck that he couldn't hold off until post-election, despite his best efforts.

Or, for that matter, maybe geokstr is right and the Obama/Soros machine caused the worldwide economic meltdown.

I'm happy to presume that Paulson behaved honorably throughout, but that's a presumption, not a fact.
10.12.2008 7:46pm
Doc W (mail):

I don't give much credence to the Ron Paul-crowd's complaints about "fiat currency", but this... this is "fiat product".

Steve2, fiat currency is money by dint of the coercive power of government. Derivatives are essentially contracts into which people enter voluntarily, whether foolishly or not. Can you fathom the difference? Running things together that are fundamentally different does not a substantive point make.
10.12.2008 10:20pm
youngbruin (mail):
You know, you don't have to use "fiat currency." You can use local scrip, or dubloons, as long as someone else is going to honor them.
10.13.2008 12:34am
Steve2:

Steve2, fiat currency is money by dint of the coercive power of government. Derivatives are essentially contracts into which people enter voluntarily, whether foolishly or not. Can you fathom the difference? Running things together that are fundamentally different does not a substantive point make.

I thought "fiat currency" was an argument that the currency is money because people say it is and agree to believe that it is, but lacks an item of substance backing it. And a derivative contract seems to me analogous to that. Looks like I used a term that doesn't mean what I thought it does... I hate doing that.

So the answer to your question appears to be, no, I can't fathom the difference.
10.13.2008 12:37am