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Archive for the ‘Credit Crunch’ Category

The Dow Jones Industrials plunged another 730 points today falling sharply on rumors that we are already in a recession. Nationwide, in fact, economic indicators have pointed to a sharply slowed economy. Fed Chairman Bernanke said the economic situation – which had already begun to slow prior to the crisis – has  worsened much more with the jitters on Wall Street. The White House and the Treasury Secretary continue to attempt to pump money directly into banks in order to loosen lending and hold off further declines in confidence and numbers on Wall Street to little affect.

Wall Street, it appears, has ideas of its own.

The Dow Jones industrials fell sharply again today settling at approximately 500 points down – 875 points down in the past two days. But the bad news doesn’t stop there – retirement accounts have lost over $2.2 Trillion, the Fed is sending money directly to businesses in an attempt to stop the free fall on Wall Street, and investors and the worldwide market is beginning to panic.

The $700 Billion bailout that congress debated just recently is now looking like it might not have been enough or it might have been a bad idea – depending on your point of view of course. One thing is certain, how the US Government handles this crisis over the next few months or even weeks will be crucial.

President Bush, who had checked out mentally a few months ago, now has a new reason to worry – one that even eclipses the war in Iraq – the financial collapse of our country. Unless this crisis is handled very gingerly, 2008 may begin to look a lot like 1929.

In trading around the world, the US bailout seems unable to stop a global plunge. Russian trading fell 15% forcing a market closure. Trading in London, Paris, and Frankfurt all fell more than 6%. Trading in Asian markets has fallen 4% so far. It is anticipated that trading in the US will follow world trading by losing more market share.

The operative phrase that is repeated in report after report is “investors are losing confidence”. It seems clear now, that the US stock plunge is far from over. We can expect more of a slide today when the NYSE opens.

In another series of unsettling market events, Wachovia Bank was acquired by Citigroup and Bradford and Bingley was nationalized by the British Government. In the meantime, 10 central banks including the US Federal Reserve  has attempted to quell  financial unrest by making approximately $330 Billion available to money markets worldwide.

At this moment, the US Congress is putting the $700 Billion bailout plan to a vote.

In the first of several debates, Presidential candidate Barack Obama clearly demonstrated his command of the facts, his intelligent and articulate analysis of the economy, and held his own against McCain in foreign policy. McCain, who was widely viewed as superior in foreign policy, should have trounced Obama – but did not. Instead, Obama sparred with McCain for over 90 minutes answering questions confidently and responding to McCain attacks decisively. In one such attack, McCain accused Senator Obama of promoting an attack against Pakistan and doing it loudly – which he felt was inappropriately handled:

We’ve got to get the support of the people of — of Pakistan. He said that he would launch military strikes into Pakistan.

Now, you don’t do that. You don’t say that out loud. If you have to do things, you have to do things, and you work with the Pakistani government.

Obama responded quickly:

Nobody talked about attacking Pakistan. Here’s what I said.

And if John wants to disagree with this, he can let me know, that, if the United States has al Qaeda, bin Laden, top-level lieutenants in our sights, and Pakistan is unable or unwilling to act, then we should take them out.

Now, I think that’s the right strategy; I think that’s the right policy.

And, John, I — you’re absolutely right that presidents have to be prudent in what they say. But, you know, coming from you, who, you know, in the past has threatened extinction for North Korea and, you know, sung songs about bombing Iran, I don’t know, you know, how credible that is. I think this is the right strategy.

McCain, on the other hand, appeared to be uncomfortable and defensive at times – even mispronouncing some leader’s names:

Now, the new president of Pakistan, Kardari (sic), has got his hands full. And this area on the border has not been governed since the days of Alexander the Great.

That may seem like a minor point, however, when you are billed as superior to Obama on foreign policy, that kind of mistake is bad – especially when your opponent (Obama) made no such mistake in over 90 minutes of off the cuff debate.

On the economy, Obama came through loud and clear as the candidate that was clearly for helping Main Street, while McCain came through as the candidate who promoted programs to help Wall Street – both by his own statements and by Obama’s criticism. In fact, McCain had to be asked twice to give an answer on his opinion of the bailout plan because he spoke about the economy vaguely in his initial statements. Obama on the other hand immediately laid out his plans on what needs to be done.

OBAMA: You know, we are at a defining moment in our history. Our nation is involved in two wars, and we are going through the worst financial crisis since the Great Depression.

And although we’ve heard a lot about Wall Street, those of you on Main Street I think have been struggling for a while, and you recognize that this could have an impact on all sectors of the economy.

And you’re wondering, how’s it going to affect me? How’s it going to affect my job? How’s it going to affect my house? How’s it going to affect my retirement savings or my ability to send my children to college?

So we have to move swiftly, and we have to move wisely. And I’ve put forward a series of proposals that make sure that we protect taxpayers as we engage in this important rescue effort.

No. 1, we’ve got to make sure that we’ve got oversight over this whole process; $700 billion, potentially, is a lot of money.

No. 2, we’ve got to make sure that taxpayers, when they are putting their money at risk, have the possibility of getting that money back and gains, if the market — and when the market returns.

No. 3, we’ve got to make sure that none of that money is going to pad CEO bank accounts or to promote golden parachutes.

And, No. 4, we’ve got to make sure that we’re helping homeowners, because the root problem here has to do with the foreclosures that are taking place all across the country.

Now, we also have to recognize that this is a final verdict on eight years of failed economic policies promoted by George Bush, supported by Senator McCain, a theory that basically says that we can shred regulations and consumer protections and give more and more to the most, and somehow prosperity will trickle down.

It hasn’t worked. And I think that the fundamentals of the economy have to be measured by whether or not the middle class is getting a fair shake. That’s why I’m running for president, and that’s what I hope we’re going to be talking about tonight.

McCain, on the other hand, didn’t have many specifics about how to fix the economic woes or about his support for the bailout plan.

MCCAIN: And, Jim, I — I’ve been not feeling too great about a lot of things lately. So have a lot of Americans who are facing challenges. But I’m feeling a little better tonight, and I’ll tell you why.

Because as we’re here tonight in this debate, we are seeing, for the first time in a long time, Republicans and Democrats together, sitting down, trying to work out a solution to this fiscal crisis that we’re in.

And have no doubt about the magnitude of this crisis. And we’re not talking about failure of institutions on Wall Street. We’re talking about failures on Main Street, and people who will lose their jobs, and their credits, and their homes, if we don’t fix the greatest fiscal crisis, probably in — certainly in our time, and I’ve been around a little while.

But the point is — the point is, we have finally seen Republicans and Democrats sitting down and negotiating together and coming up with a package.

This package has transparency in it. It has to have accountability and oversight. It has to have options for loans to failing businesses, rather than the government taking over those loans. We have to — it has to have a package with a number of other essential elements to it.

And, yes, I went back to Washington, and I met with my Republicans in the House of Representatives. And they weren’t part of the negotiations, and I understand that. And it was the House Republicans that decided that they would be part of the solution to this problem.

But I want to emphasize one point to all Americans tonight. This isn’t the beginning of the end of this crisis. This is the end of the beginning, if we come out with a package that will keep these institutions stable.

And we’ve got a lot of work to do. And we’ve got to create jobs. And one of the areas, of course, is to eliminate our dependence on foreign oil.

Obviously, McCain had more to say on the economy as the debate continued, but the point here was that he was slow to initially respond on the most important crisis facing America today and was on the defensive about House Republicans torpedoing the bipartisan Senate agreement taken to the White House – since it is widely viewed as a McCain led attack on the initial plan.

Interestingly enough, polling has shown that Obama won the debate by a large number of uncommitted voters (CBS & CNN poll) on the economy and foreign policy. However, I have never been a strong proponent of polling because I believe the media to be conservative (for the most part) and often polls are skewed to the right-center or right of any issue. Even so, the polling is interesting – even when you factor in a skew to the right:

CBS Polling:

40% of uncommitted voters who watched the debate tonight thought Barack Obama was the winner. 22% thought John McCain won. 38% saw it as a draw.

68% of these voters think Obama would make the right decision
about the economy. 41% think McCain would.

49% of these voters think Obama would make the right decisions about Iraq. 55% think McCain would.

CNN went beyond that actually finding that Obama won on Iraq issues:

Who Did the Best Job In the Debate?

Obama 51%
McCain 38%

Who Would Better Handle Economy?
Obama 58%
McCain 37%

Who Would Better Handle Iraq?
Obama 52%
McCain 47%

Overall, I think Obama has a clear victory in this debate – even if you rank him equally with McCain on foreign policy (or close but behind McCain) the damage is there. McCain’s strongest perceived issue – foreign policy – was no knockout punch to Obama. In addition, with the economic turmoil facing the country right now, McCain seemed out of touch and vague on the details of both his support of the bailout plan and what he might do as President to fix the mess. In hindsight, leading a Republican House delegation to the White House to scuttle the bipartisan Senate agreement on the bailout plan probably was a gamble that only helped Obama and hurt McCain.

Seemingly above politics, Senator McCain vowed to suspend his campaign, travel back to Washington, and help lead the fight to straighten out the mess with the $700 Billion bailout. There was one small problem – he needlessly complicated matters instead of resolving issues.

Candidate McCain injected politics where they didn’t belong – in a national crisis. Obama, on the other hand, was reluctant to endorse the involvement of he and McCain directly in the meeting at the White House fearing that the temptation was too great to politicize the issue. He was right.

Yesterday, a bipartisan effort by Democrats and Republicans in the Senate produced a bill that both parties agreed to but contained important wording that the Democrats had demanded – to protect the American people – and not to simply “rescue” Wall Street. This bipartisan effort all parties agreed was needed – including candidate McCain – was thwarted at the last minute when McCain and House Republicans arrived at the White House.

McCain, who led a delegation of House Republicans to the White House meeting, proposed a completely different idea that the Senate Dems and Republicans had not seen or considered. McCain’s shameless actions helped throw a virtual agreement into shambles and helped interject just enough time to let yet another major financial institution fail: Washington Mutual.

McCain’s actions have further endangered the well-being of the economy, aided in the collapse of another major financial institution, and helped to further divide the House and Senate. Furthermore, in doing so, McCain was not even honest about his claims of suspending his campaign. According to the MSNBC, a check of all McCain campaign headquarters revealed that it was business as usual for the McCain campaign. None of the offices were closed and none of the advertising McCain claimed to have pulled from the airwaves was actually stopped.

This was pure political drama – plain and simple. John McCain should be ashamed of himself.

This is an enormously important issue demanding urgent action. All John McCain could do was attempt to politicize the issue for his own benefit.

NOTE: Refer to the interview with Rep. Rahm Emmanuel (D-Ill) explaining just what happened at the White House.

As yet another major financial institution goes down in flames, we are reminded again – during an election year – that despite all the distractions, it is still all about the economy. Republican candidate John McCain would love you to think it’s all about his military service, gay marriage, or several other distractions. It is, however, much simpler than that. To quote Ronald Reagan, “Are you better off now than you were four years ago?”

The answer is equally simple: no. The economy is in shambles, job loss is increasing, energy costs are skyrocketing, and our financial institutions are crumbling.

Alan Greenspan, the respected former Chairman of the Fed, has been prominently espousing his point of view on just what is going on and how to handle (or not handle it). Greenspan is, for instance, dead certain that McCain’s tax cut plan is disasterous for the country. You cannot cut 3.3 trillion dollars in taxes and continue to spend 10 billion a month in Iraq and Afghanistan. Plain and simple.

Greenspan also notes that the more financial institutions will fail, but the extent of the impact of such failure is not necessarily bad – that will depend on our leadership’s response to this crisis.

See we are….ooops. Guess we’re in trouble.