The volatility in the markets right now is just crazy. Investors don't know whether the sky is falling or whether riches are falling from the sky; one day it's PANIC PANIC! SELL SELL! The next day it's WE'RE SAVED! BUY BUY!
The TSX seems to be a lot worse in this respect than other world markets, partly because it's tied so strongly to the volatile oil industry. I have a feeling our investors may be a bit stupider too. But at least our banks are smart.
Ezra Klein has a post concerning whether the US government might actually turn a profit with their sweeping new role in the financial sector, which is an interesting question to say the least:
Matt Yglesias has a post asking whether the government will make a profit out of all this. I'm much more skeptical than he is, but it's worth adding one bit to his analysis. You keep hearing people say that we're in a "liquidity crisis." That's different than what people think we're in, which is an asset crisis. There are a lot of overvalued assets, yes, but the basic problem is that regulations on how much cash banks need to keep on hand have been loosened. Meanwhile, the panic around the overvalued assets is pushing people to take their money out of the market. But the banks don't have enough cash on hand to give people their money bank. Thus, collapse. Meanwhile, old-style banks like Bank of America whose leverage is limited to around 10-to-one (they can only have ten bucks of debt for every dollar on-hand) are riding this out pretty well.
In crises like this, the assets tend to look even more worthless than they are. The smart play would be to simply endure the panic, refuse to sell during the hysteria, and then make rather more money by selling when the chaos ends and the prices drift upwards towards a more natural level. But because these banks don't have sufficient liquidity, they can't do that. The government, by contrast, can. So they're going to buy these assets at very low prices and, in time, sell them off at slightly higher prices. This may mean they make some money. But whether that will be enough money to offset all the cash they'll have to pump into the market to ensure solvency remains to be seen.
In any case, what post would be complete without more examples of McCain demonstrating some rather blatant dishonesty? Today he was going after Obama for an alleged association with Franklin Raines, a former chief executive at Fannie Mae:
Republican McCain released a new spot Thursday that quotes The Washington Post as saying Democrat Obama gets advice on mortgage and housing policy from a former Fannie Mae chief executive, Franklin Raines. [...]
Obama's campaign says Raines is not an Obama adviser and that McCain's campaign knows it because Raines said so in an e-mail earlier this week to Carly Fiorina, a top McCain adviser. Obama's campaign provided The Associated Press with a copy of the e-mail.
"Carly: Is this true?" Raines asks above a forwarded note informing him that Fiorina was on television saying he was an Obama housing adviser. "I am not an adviser to the Obama campaign. Frank." [...]
Obama spokesman Bill Burton ... said Obama only met Raines once briefly at an event, and that Raines sought an introductory meeting with Obama Senate aide Mike Strautmanis. At that meeting, Burton said no advice was sought from or given by Raines, who also had served as President Clinton's budget director.
"This is another flat-out lie from a dishonorable campaign that is increasingly incapable of telling the truth," Burton said. "Frank Raines has never advised Senator Obama about anything -- ever."
Okay, so it's a lie. But even if it wasn't, what does McCain think he's going to prove?
As always, he's throwing bricks from a glass house. Steve Benen asks:
If getting advice from an official at a troubled financial institution is a
sign of bad judgment, then why is that two of McCain's top
advisors include John Thain, from Merrill Lynch, and Martin Feldstein, who
serves on AIG's board of directors?
The election is just 46 days away. Just as McCain's message should be
getting tighter, clearer, and more persuasive, McCain seems to be getting more
reckless, more scatterbrained, and less coherent.
I think Joe Klein nailed it; he's flailing.
Also, McCain's own connections to Fanny and Freddie and their lobbyists are far more extensive than Obama's. Could this campaign get any stupider?
Turns out it can. He also blamed Obama for the crisis! Seriously! This is the full quote:
“We’ve heard a lot of words from Senator Obama over the course of this campaign. But maybe just this once he could spare us the lectures, and admit to his own poor judgment in contributing to these problems. The crisis on Wall Street started in the Washington culture of lobbying and influence peddling, and he was square in the middle of it.”
Culture of lobbying and influence peddling? This from the guy whose campaign is literally being run by lobbyists? To attack a candidate who has refused all donations from lobbyists all along? But wait, there's more:
“Two years ago, I called for reform of this corruption at Fannie Mae and Freddie Mac. Congress did nothing. The Administration did nothing. Senator Obama did nothing, and actually profited from this system of abuse and scandal. While Fannie and Freddie were working to keep Congress away from their house of cards, Senator Obama was taking their money. He got more, in fact, than any other member of Congress, except for the Democratic chairmen of the committee that oversees them. And while Fannie Mae was betraying the public trust, somehow its former CEO had managed to gain my opponent’s trust to the point that Senator Obama actually put him in charge of his vice presidential search.”
Again with all the stuff stuff about Fannie and Freddie: "corruption", "working to keep Congress away from their house of cards", "betraying the public trust". Pretty strong words, but it was John McCain's own inner circle that pushed for the deregulation that made subprimes possible.
Yet again, with one inane, dishonest, baseless attack after another, McCain is counting on the voters to be stupid, and not bother to check the facts. It isn't working for him now, nor will it work in the future. McCain continues to lose ground in the polls (the Gallup tracker has Obama five points ahead now), and Palin has seen her favorable ratings plummet in the past week or so as she has been exposed as a pathological liar and total lightweight on nearly every issue of national significance. She will be the subject of my next post, because this one is too long already.