Sat, 04 Oct 2008

Bailout Plan Stalls After Day of Talks; Bernanke and Paulson Head Back to Hill

There's only one word that can describe this, and please forgive my vulgarity: clusterfuck.

Now, it should go without saying that I'm entirely pleased that the deal is bogging down, as all it would really accomplish is throwing good money after bad. Or throwing bad money after bad, or something like that.

Look, there's no way now that we can avoid a depression - the only real question is if it's going to be more akin to 1929 or 1907. Dumping the amount of money being discussed is going to make it feel more like '29 - the "bailout" in '07 was mostly private money, although TR got involved in some anti-trust aspects. By the way, the contraction containing the Panic of 1907 lasted a little over 18 months.

The events leading to the panic du jour, and the proposed "solution" are far closer to events leading to the Crash of 1929 and the Great Depression. The Roaring Twenties roared on easy money from the Fed. Interest rates were at historic lows, and a good percentage of the population was involved in the stock and bond markets for the first time.

When you have a crisis caused by easy credit, the last thing you want to do is ease credit. This is the same mentality (or lack of it) one would display by throwing gasoline onto a bonfire in an attempt to put it out. It don't work.

But this political circus, and the attendant hypocrisy by nearly everyone involved is making me sick to my stomach. The only numbers McCain is trying to raise are those of his polls. In fact, those are apparently the only numbers he understands. Both the candidates "solution" of even more regulation, followed by more taxpayer money, are essentially the same. And any way you cut the cookie, that's just useless right now.

Let the market settle itself out - let the companies fall and the financial system reorganize itself. If you still feel the urgent need for government action, then step in and make sure the rules are fair and evenly enforced. For example, call "credit default swaps" exactly what they are: insurance - and treat them like other insurance products. There are quite a few other rule changes (or rather rule reversions) that would be most useful - we could abolish the Federal Reserve and go back on the gold standard, for instance. But those are the only kind of changes required - anything more and you're back to smoking next to the propane tanks.

The current crisis was caused by easy money from the Fed, and rule changes foisted on the markets by Bush & Cronies to tilt the playing field towards financials and services. It worked, too, and now the avalanche is about to roll down the table and crush them. Let it.

We're going to have a depression - a business contraction. The only question is if it'll be sharp and short like 1907, or if it'll last a decade, with misery unimagined by most folks living today. Unfortunately, our political leadership seems hell-bent on making sure we take the latter path.

Congressional leaders had claimed to have reached an agreement in principle on the financial rescue effort, but in the evening, it appeared to fall apart.

(link) [New York Times]

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