“Soft despotism is a term coined by Alexis de Tocqueville describing the state into which a country overrun by "a network of small complicated rules" might degrade. Soft despotism is different from despotism (also called 'hard despotism') in the sense that it is not obvious to the people."

Monday, September 15, 2008

It Comes Down to This. Who Do You Trust With The Economy?

"Geez, do you think it will spread?"

Bernanke was correct when he suggested that the banks should be permitted and encouraged to sit down with problem borrowers and re-negotiate existing loans and mortgages. The reluctance to do so was the equivalent of allowing houses to burn down because the owners did not pay their local taxes. Well guess what. How did that work out?

Bank meltdown wallops campaigns


By MIKE ALLEN | 9/14/08 9:56 PM EST

America’s banking instability could upend the final 50 days of the presidential campaign, with both candidates forced to confront a calamity that has gotten only glancing attention during the first 20 months of the race for the White House.

Red flags about the nation’s economic infrastructure have been popping up at least since the collapse in March of the investment bank Bear Stearns. But neither Sen. John McCain (R-Ariz.) nor Sen. Barack Obama (D-Ill.) has talked in detail about the potential consequences for voters and the government.

Until now, the crisis seemed like a confusing Wall Street story. That all ended with the fast-moving events of Sunday, which The New York Times called “one of the most extraordinary days in Wall Street’s history.” A CNBC special report on Sunday night called it “a complete realignment of Wall Street.”

And that was before the extraordinary 9:30 p.m. announcement by the Federal Reserve of new efforts to shore up markets.

So it’s no longer an insider's game. The crisis is now at a tipping point where Wall Street will visibly affect Main Street: Home buyers, consumers and entrepreneurs will have even more trouble getting credit, slowing the nation’s job machinery.

Here are four huge effects for the campaigns:

1. The candidates had hoped to put off their detailed prescriptions until they were in office, unrolling an economic agenda in conjunction with an address to the new Congress. Now, there's no way to duck it.

But at a time when the economy is the top issue on voters’ minds, one of the candidates could wind up winning the neck-and-neck election by talking clearly and convincingly about the fallout and what should be done.

"This is the financial equivalent of Russia invading Georgia — an unexpected event that calls for leadership and direction,” said James Rickards, senior managing director for market intelligence at Omnis Inc., a research and analysis firm based in McLean, Va.

“This is an opportunity for both candidates to go beyond their [comments on] administration action and show how they would stabilize the system on a more lasting basis.”

2. The new crisis crowds the candidates’ agendas in the stretch run, keeping them from talking about the issues that they had planned to focus on. But the candidates are creatively trying to meld the disaster into their existing messages.

McCain aides say he plans to use the news to underscore the reform message that he began hammering at the Republican National Convention.

“This is bad news for the country and yet another sign that we need to reform Wall Street,” a senior McCain official said. “The only way we can do that is by reforming Washington first. We will show McCain and Palin as the ticket who will take action on the economy and make sure the taxpayers aren't stuck with the bill.”

Obama aides say he will hammer the message that the market upheaval shows that the country can’t afford four more years of policies aligned with those of the current administration.

His running mate, Sen. Joe Biden (D-Del.), was already scheduled to give a major speech Monday in St. Clair Shores, Mich., and is likely to get heavy coverage for his fiery elaboration on this theme.

3. Just like the markets, however, each candidate faces an enormous downside risk: Troubled times could make voters less likely to take a chance on Obama, with his shorter time in Washington. McCain could pay the price for the economic disruption on a Republican's watch, or if he looks like he doesn’t have the energy and creativity to reassure a worried nation.

4. They will also be more constrained when they get to Washington, with analysts estimating that the government takeover of mortgage giants Fannie Mae and Freddie Mac is likely to cost the Treasury $100 billion to $300 billion.

Treasury Secretary Henry Paulson “spent the cookie jar” with the takeover, a McCain adviser said.


  1. I believe it's true, as I read the other day, that Bush tried to get a handle on Freddie and Fannie early on, in his first term. Basically wasn't able to do so because of Congress.

    Also, I know it's true that the Republicans introduced bills in every Congress, which were passed in the House, for drilling and nuclear, and it was the Senate democrats that stymied the proposal every time. Back during Clinton's time, Congress actually got a bill through both houses, and Clinton vetoed it.

    It's a self induced bleeding we are undergoing, and it's mostly the fault of the democrats and their allies in the environmental groups.

    Raising taxes isn't going to help.

    I'll take the Republicans. And I'd take Palin over McCain, especially on energy, which as she says, is also a national security issue.

    Time to get serious.

  2. Robert Rubin seems to have done the best job of it, in the past 20 years.

  3. And as lineman's list of Obama's transition team indicated, that's the kind of management we'd be getting with Team Obama,
    "The Old School"

  4. The "First Four" at RCP

    Nightmare on Wall Street - The Economist

    Financial Russian Roulette - Paul Krugman, New York Times

    When Will We Hit Bottom? - Jacqueline Thorpe, Financial Post

    Bank Meltdown Wallops Campaigns - Mike Allen, The Politico

  5. Infrastructure, public and private. All the money and capital wasted on outsized misplaced homes that coud have re-industrialized and built a much more sustainable economy. Oh well.

  6. We all have our favorite. Mine has been and still is a twinned interstate highway system exclusively for trucks and commercial transport.

  7. Nightmare on Wall Street
    Sep 15th 2008 |

    In a sign of how bad things are, even straitened banks are stumping up cash to help the stabilisation efforts. On Sunday, a group of ten banks and securities firms set up a $70 billion loan facility that any of the founding members can tap if it finds itself short of cash.

    Even if markets can be stabilised this week, the pain is far from over—and could yet spread. Worldwide credit-related losses by financial institutions now top $500 billion, of which only $350 billion of equity has been replenished. This $150 billion gap, leveraged 14.5 times (the average gearing for the industry), translates to a $2 trillion reduction in liquidity. Hence the severe shortage of credit and predictions of worse to come.

    Indeed, most analysts think that the deleveraging still has far to go. Some question how much has taken place. Bianco Research notes that while the credit positions of the 20 largest banks have fallen by $300 billion, to $1.3 trillion, since the Fed started its special lending facilities, the same amount has been financed by the Fed itself through these windows. In other words, instead of deleveraging, the banks have just shifted a chunk of their risk to the central bank. As spectacular as this weekend was, more drama is on the way.

  8. I don't think many people in "the real world" care that one bunch of wall street crooks busted another bunch of wall street crooks. (they Will care in a few months when the unemployment rate goes even higher due to companies being unable to get credit for expansions, new products/plants, etc., but that will be after the elections.)

    Look, the average Joe knows the FDIC has his back. He's going to be much more pissed off about the price of gas (if he can get it.)

  9. So Nato will stay, as long as we do, 'cause we be Nato, too. Just the other member countries, they'll not send combat troops.

    Mon Sep 15, 07:38:00 AM EDT

    I feel for the Canadians; for their relatively small number, they do *a lot* of heavy lifting. The PM has to offer a light at the end of the tunnel for weary Canadians. What to do? Seize on benchmarks:


    Canada pledged its full support for the Afghanistan Compact, a 2006 agreement
    between the Afghanistan government and the international community represented by more than 60
    states and intergovernmental organizations, to help rebuild the war-ravaged country.
    Ingrained like a watermark throughout the Compact and related documents is the timeline date “end-
    End-2010 is the date by which the Afghan government, with the help of the international community, is
    committed to achieve its benchmark of 70,000 fully-trained and equipped Afghan National Army troops
    capable of meeting Afghanistan’s security needs.
    End-2010 is the date by which they are committed to achieve the benchmark of 62,000 fully constituted
    and professional Afghan National Police and Afghan Border Police.
    End-2010 is the date by which they are committed to achieving their stated counter-narcotics capacity
    benchmarks; mine action and ammunition reduction targets; public administration reform, rule of law
    frameworks and human rights obligations; air transport, energy, water resource management; urban
    development; primary, secondary and higher education goals; health and nutrition benchmarks; and plans
    for agriculture and rural development; poverty reduction; and on, and on, and on in order to rebuild
    Afghanistan’s society.


    Should the Canadians redeploy lock, stock, and barrel from Kandahar (unlikely) the NATO mission will still comprise in the neighborhood of 50K troops.

  10. What if we had nuked the training camps on September 12?

  11. IMHO, it would have been far more effective had we done that and then sought and took financial compensation, damages and retribution form Saudi Arabia, as opposed to celebrating Ramafukadingdong in the White House.

  12. Three direct hits on NYC and the PENTAGON, three thousand dead and we have the targets and the capability, a trillion dollars invested in strategic weapons designed and paid for by generations of the American public, to protect the same and kick the living shit and memory out of those who dare strike us. WTF

  13. Instead we go toe to toe with foot soldiers and allow the bastards to do an NVA move and play rope a dope with the Whatthefukupistans.

  14. What if we stop playing the game of "What if we had done [this thing that no one - among the NCA/NSC - was seriously considering]?"

    Like the "dirt nap" for the nutjob next door. Might be cathartic to contemplate, but in real terms it's beside the point.

  15. true...true...true, however, a war of attrition with people who have no concern for casualties because it is the will of Allah, is not where we want to be.

  16. If they had no concern for casualties they'd be doing what the Afghan Arabs started out doing - namely, running in front of the automatic fire at every available opportunity, which habit they were soon broken of.

    Were that they didn't give a damn, the job would be that much easier.

  17. Entre nosotros hablando.