Seismic Economics

After an amazing five-year run when the world saw the Dow Jones Industrial Average (DJIA) increase in value fivefold, prices peaked at 381.17 on September 3, 1929. The market then fell sharply for a month, losing 17% of its value on the initial leg down. Prices then recovered more than half of the losses over the next week, only to turn back down immediately afterwards. The decline then accelerated into the so-called "Black Thursday", October 24, 1929 (From WikiPedia)

The Election of 1928 was a landslide victory for the Republicans, since they were associated with the tremendous prosperity of the 1920's; the current president (Coolidge) had decided NOT to run. Herbert Hoover, as President,

was a proponent of the concept that public-private cooperation was the way to achieve high long-term growth. Hoover feared that too much intervention or coercion by the government would destroy individuality and self-reliance, which he considered to be important American values.

Of course, those HAVE been traditionally "Republican" values. But in a last-ditch effort to preserve James Buchannan's spot as "worst American President" (lest #43 take over that title), George W. "CYA" Bush attemped to get conservative House members from small towns who were up for re-election in about a month to shore up Wall Street and the credit markets.

And in one of the most bi-partisan acts of her tenure, Speaker Nancy Pelosi gave House Republicans "cover" to bail on the bailout, by doing just what moms have been doing since the end of time--fussingly telling the truth!!! So the Republicans did bail--while, of course, blaming "mom" for making them mad!!

So now what? As expected, the stock market took an upswing as bargain hunters swooped in; how sustainable that will be is still anyone's guess. No one wants to do much this close to an election, for fear of being blamed; once the election is decided, it will be so much easier to simply unload the problem onto the winners.

Cue Ronnie: "There You Go Again . . . . ."

Heads I Win, Tails--Well, I Still Don't Really Lose . . . .

In an excellent commentary on the Mother Jones website, James Ridgeway analyzes whether the bailout is, in fact, socialism taking root in America. He writes:

We'd probably be a whole lot better off if the Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Corporation (Freddie Mac), which together guarantee more than 40 percent of the mortgages in the United States, had been "socialist from the start"—that is, government entities owned and run in the public interest. Instead, they are so-called government-sponsored enterprises, or GSEs—publicly chartered, but stockholder owned. They are run as private corporations, with an army of lobbyists to advance their interests, but with "implicit" federal backing. As Paul Krugman puts it, "This implicit guarantee means that profits are privatized but losses are socialized. If Fannie and Freddie do well, their stockholders reap the benefits, but if things go badly, Washington picks up the tab. Heads they win, tails we lose.

So, now we are applying that same "socialist" principle to Wall Street--that profits go to the shareholders, but if the losses are deep enough, then we temporarily suspend capitalism and become socialist for a while. Oh, but wait--they got in trouble trying to help "us" out--you know those of us trying to buy a $400,000 house on a $30,00 income.

Herbert Hoover tried a similar public-private setup with the Federal Home Loan Bank Act of 1932, which aimed to support banks in making loans to homeowners. But its impact was limited, and when Franklin Roosevelt came into office, he asked Congress for legislation that focused more directly on the needs of working-class and middle-class homeowners, rather than the lending institutions, through something called the Home Owners' Loan Corporation.

The Democratic leadership apparently didn't miss class that day; they are (IMHO rightly) insisting that what worked in the past didn't just focus on the institutions, but on the rest of us.

In discussing the bailout, Mr. Ridgeway points out that neither side is proposing out-and-out government ownership of the mortgage loan agencies, even though that may ultimately prove less costly.

He also points to the parallels to Democratic proposals for Universal Health Care; should this immediate crisis be resolved with a public-private "socialistic" solution, there will be precedent for health care to follow.

I think it interesting that both campaigns are handling this situation carefully; when deliberative action requiring both finesse and leadership are called for, it is the candidate themselves who must tone down the electioneering--with catchy slogans and 10-second sound bites--and demonstrate how they might actually govern.

Socialism, capitalism, public-private partnerships, regulatory oversight. Folks, this is complicated stuff, and requires a steep learning curve on the part of "hoi polloi" before pulling the ballot box lever.

But it beats filling the air waves with discussions on lipstick, moose stew, and other prattle.

Even for the US Treasury, this is REAL money . . . .

Wanted to get my arms around the bailout figure of $700 Billion.

Current figure for students enrolled in degree-granting institutions of higher learning this year, about 18 million. For the $700 Billion, we could give each one of them a new BMW for an enrollment incentive.

We have about 17,500 students total at HACC. Each of them could spend over $100,000 each day for the next year, and then they each would still have $3,500,000 to put into the bank for a rainy day.

If one of the first Pharaohs of Egypt were to have remained alive since his reign, he could have spent $ 250,000 each and every day since, and would still have enough to support his spending habit for another 3,200 years.