Some quick thoughts on the past few days:
- This space has been highly critical of Hank Paulson and Ben Bernanke. The decision to let Lehman Brothers fail doesn't make up for their past mistakes, and may have been rooted more in the need to save ammo for the commercial banks than in any newfound concern about moral hazard or the socialization of risk. But the Lehman failure helps lay the groundwork for sustainable and sane policy. Of course there will be pain along the way, as Monday showed.
- Some good, smaller things are happening away from the main headlines. This story is an example.
- Investigations, prosecutions, and jail time where appropriate: faster, please. This will be an important part of any market recovery, which will come only when the public believes the bad guys have been held to account. And I'm not just talking about a couple of hapless hedge fund managers, a handful of fly-by-night mortgage companies, or some corporate boards that should forfeit past compensation. Some incompetent, pliant statists have helped put this nation in extreme peril. Every day that passes without a full-scale national inquiry focusing on Greenspan and other current and former top officials is a disgrace. The Fed governors and FOMC members responsible for the policy failures that got us here should all take their turns under the hot lights. Yes, that includes Ben Bernanke (more to come on him). In 18th century France, discredited monetary officials slinked off to other countries to spend their sunset days in dank gambling halls. Here they write books, opine in the media, and collect huge paychecks on the lecture circuit and Wall Street gravy train. Since Greenspan doesn't seem to have John Law's conscience, Congress needs to hasten his discrediting. High-profile accountability can start now and defuse some public anger, or it can wait for what I believe is a coming period of major socio-economic unrest in this country.
- The presciently bearish market pundits are having their day, and deservedly so. Nouriel Roubini is the media's new darling. Check out Barry Ritholtz's site stats. As for this relatively minor blog, Monday was one of its most visited days ever. (A check of the log also showed multiple visits from Fed and Treasury-registered IP addresses at odd hours over the weekend, which I found interesting.) Aside from the contrary-indicator implications, which Barry often notes, keep this in mind: just as the permabulls will never tell you to sell, bears can have a hard time saying "buy" -- particularly when their fame is linked inextricably to their bearishness. Obscure pundit issues dire warnings but is mostly ignored, often for years. Pundit becomes famous when his warnings come to pass. Viewers/readers/subscriptions/salary all skyrocket. Panic subsides and the market bottoms somewhere along the way. Pundit's popularity starts to level off. Market starts long, slow recovery. Pundit spends the next decade or two warning that we haven't seen the worst yet. Lather, rinse, repeat. Anyone familiar with Joe Granville knows the story.
- As for the pundits who got it horribly wrong or are products and symbols of this era, one mark of a longer-term bottom will be the separation of them from their media platforms. That includes Goldilocks-invoking pollyannas and chair-tossing screamers. If the corporate-owned media wants to hasten a recovery, set the tone for a new period, and attract a fresh round of doe-eyed suckers for the stock market, it will do this purely out of self-interest -- no newfound concern for the financial well-being of viewers or readers needed.
- The past eight years have constituted the fastest, most complete reversal of fortune in this nation's history. One party controlled the government for almost all of it. Obama/Biden have been handed on a silver platter one of the starkest policy debacles ever, and just weeks before an election. If they don't hammer the White House and Republicans every day for this, they deserve to lose. And if voters don't think change is needed, they deserve whatever John McCain gives them.
- The folly of the occupation is clearer every day. The money we spent on Iraq just in the past twelve months could have payed for the Fannie and Freddie bailout.
- A couple of big-picture realities have become obvious. First, our financial system as it's currently constituted is neither profitable nor viable without artificially low interest rates. Moreover, in an age of risk socialization, the winners are those who acquire an implicit government guarantee by becoming "too big to fail." Individually, each reality has broader implications -- together, even more so. Perma-low rates and system-saving bailouts and interventions aren't possible without a de facto dollar standard; the longer-term inflationary consequences are too serious. That's why any country that resists that standard, particularly when it does so openly and vocally and with oil profits, is a threat. When Iran or Venezuela or Russia shun the dollar in favor of other currencies and gold, they both complicate things for Bailout Nation and throw a monkey wrench into the bigger-is-better ethos that's long been an important and extremely profitable part of this nation's corporate culture, particularly on Wall Street. The geopolitical implications are obvious. And along with Haffner's perspective on the social effects of economic chaos, they're distressing:
Everything takes place under a kind of anesthesia. Objectively dreadful deeds produce a thin, puny emotional response. Murders are committed like schoolboy pranks. Humiliation and moral decay are accepted like minor incidents. Even death under torture only produces the response 'Bad luck'...The result of this million-fold nervous breakdown is the unified nation, ready for anything, that is today the nightmare of the rest of the world.
As Bailout Nation morphs into Ready-For-Anything Nation, watch for signposts along the way like this report. Anyone want to blame the rest of the world for watching us with a wary eye? Which presidential candidate stands the best chance of turning back this creeping madness?