A Pig in a Poke

The following is admittedly only my rambling sense of the worldwide financial crisis, as picked up primarily from Gawker commenters, and put together in my own head. It may be wholly inaccurate, so I guess it is, above all, a story:

At first I did not think it was serious, and that "the only thing to fear is fear itself," i.e. that if the market would not let itself be spooked, stocks would not fall and companies would not have lower earnings and stockholders would not lose their savings. But it is evident that the market is fundamentally unsound. In general I've read that stocks are far overvalued, and that they should realistically be at around 8,000 on the Dow Jones now (though apparently the Standard&Poor is a far better index). In particular, housing prices were overinflated, and so that industry has been quietly losing steam for at least a year now. But real estate is what much of the American economy is invested in, and when this real estate cannot be sold, the companies are unable to transfer the property back into the liquid money that they presently need. At the same time, investors have frequently employed the practice of short-selling, in which an investor sells stocks, expecting that they will depreciate in value (he may even help along this process by propagating unfavourable rumours about the company to whom the stock belongs), after which point he buys them back at a far cheaper price. But, due to greed, this has been done too much, so the Lehmann Brothers actually collapsed because of it.

As one investment bank after the other collapsed in its wake, the confidence of banks in each other has been ruined, so they are unlikely to lend money to each other. In countries like Ireland, Austria, and Germany, the government has promised the security of all bank assets, and is hoping that this will encourage lending again. At the same time, the plunging stock markets are decreasing confidence in the American economy in general, and almost every major company (with the striking exceptions of Campbell's Soups and Tivo) is seeing a drop in its share price. So that is the problem on Wall Street, and of course in stock markets around the world. Iceland was in serious danger of national bankruptcy. Even China, I read in a New York Times article today, will suffer if it can no longer unload its exports on other countries.

The problem on "Main Street" is that firms, from the investment banking firms and Hewlett-Packard to, oddly, Gawker Media, are cutting jobs. On Gawker, it seems that people are only half-joking when they depict their future selves holed up in cardboard boxes, eating crackers and cheese and shooting the occasional squirrel, in the alleys outside their present apartments. Also, the 401(k) retirement plans, where employees invest money in stocks chosen by themselves to finance their pension, are rapidly losing value (in double-digit percentages, even). Of course any stock owner is not going to be happy now. And I'm sure that's just the beginning.

I think that, had the first bailout bill been passed, it would have swung the stocks back on track, because it would have convinced people that the government was certain that it could remedy the crisis, and confidence would have been restored. But, as it was, the government betrayed incompetence and hesitancy, which undermined the stock market to the point that the two or three days that elapsed before the second bailout bill was passed were fatal. The extra $100 billion+ in earmarks (most infamously, a tax break for children's play-arrow shafts, introduced at the behest of the two senators from Oregon) that were added to the bill certainly did nothing for the repute of Washington. Oddly enough, by the way, the press is still referring to this legislation as the "$700 billion dollar bill," when it is really at least the "$800 billion dollar bill." Another valid criticism is that money should, most likely, be injected at the level of the consumer, to remedy the worst damage of the subprime mortgage crisis and to increase consumer spending.

Anyway, to relate this to the election, on thinking of the situation further, I fully understand now why voter support is swinging to Barack Obama in light of it. Imagine that John McCain is elected president. There would be no upswing in optimism, because he has such a long history of supporting deregulation and precisely the state of affairs that got us into this mess, and because he does not seem to have presented a new plan. He did not even manage to get his fellow Republicans to support the first bailout bill as he had said he would. As for Sarah Palin, the economy has clearly never been her specialty; she has only been proficient at cutting taxes, and, given the state of the household, this is not feasible now. Besides, it's what George W. Bush already did, and look where it got us. Nor does she present a serious or informed front. Obama, on the other hand, is both serious and informed, and he has new advisors and (presumably) new ideas, so I would guess that the stocks would rise on his election. It does not look, either, as if he would continue to pump $10 billion per month of American taxpayer money into the Iraq War; as he and Biden stressed during their debates, the Iraqi government does have a $79 billion surplus. (Of course this figure can be taken cum grano salis, but I trust them enough to be sure that it isn't that far off from the truth.) And Biden, while very much a Washington insider, is at least in the subordinate position of vice-presidential candidate.

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I think that John McCain is totally wrong as presidential candidate. He doesn't get along well even with his own party, and he has been well-to-do and embroiled in Washington politics for so long that he has no idea how 90% of Americans live and what is important to them, and the only issues he appears to care about are deregulation and anti-corruption and war. His proposal during the first presidential debate to freeze spending on everything except defence and veterans, and then to slash funding for the useless projects that litter the budget, was in my view a little off the deep end. Even where he is passionate about issues, like the war and torture and the economy, he has consistently betrayed himself in the past two years. He voted against the anti-torture bill that he had introduced; he voted against the GI Bill that would have ensured returning soldiers a good education; and he voted for a bailout bill that went against all his economic principles. Grumbling (or, to borrow from the vernacular, bellyaching) about the bill afterward is absolutely no substitute for action. Most politicians have consciences, and, however diseased these may be, not many of them constantly air their scruples to extort commiseration and praise or to bask in their own thwarted righteousness. That's a wimpy cop-out, not a redeeming trait. He was a maverick, who let himself be branded.

One thing that puzzles me, too, is McCain's visceral personal dislike of Obama. As people have pointed out, he didn't even look at Obama during the first debate. (Which, in turn, is like Palin's performance in the vice-presidential debate, when Sen. Biden had just mentioned being a single father after his first wife and daughter died in a car accident, and she didn't even acknowledge that but cheerfully went on to her next talking points. NYT columnist Frank Rich wrote a really good article about matters like this.)

Generally he prided himself on his "straight talk," and now he condescends to insinuation and smear tactics like everyone else. Yesterday, in a rally, he rhetorically asked, "Who is the real Barack Obama?", and someone shouted out "Terrorist!" He looked disapprovingly pouty at first, but then smiled, as did his wife in the background. He continues, "But, my friends, you ask such questions, and all you get in response is another angry barrage of insults." No correction, nothing. At least his statement is true, if one applies it to himself and his supporters. It's the exact same maddening phenomenon that occurred in the quotation I posted previously, where he says that politicians are expected to leave partisanship at the door, and then he blames Obama for the defeat of the bailout bill. Forget medicine; the cure for low blood pressure is a politician with a penchant for projection. And he was doing no more than following the base lead of Sarah Palin, who irretrievably ruined my opinion of her when she accused Obama of "palling around with terrorists" (i.e. ex-Weatherman Bill Ayers . . . vide dark-skinned people who may be Muslim). His Straight Talk Express has not only taken a detour to Bullsh*t Town, to borrow an expression from Jon Stewart, but it broke down there and is rusting away in the wrecking yard as we speak.