The Economy: Four More Years, Or Time For A Change?
So, Bear Stearns is gone. Lehman is gone. Merrill Lynch exists in name only. Fannie and Freddie are now our problem. AIG may be rescued. WaMu is junk. And CalculatedRisk notes that Wells Fargo will take a non-cash charge to earnings, because of its Lehman exposure. Which isn't all:
With the unsecured counterparty exposure, this loss could be close to $200 million. Just last week, Wells Fargo reported $450 million (or so) in losses associated with Fannie and Freddie.
Little wonder that Felix Salmon wrote this:
So you think that we've dodged a bullet with the Dow still above 11,000? Just wait. This thing ain't over yet. In fact, it's barely begun.
Wells is not thought to be in trouble, but that's quite a hit. Goldman and Morgan are in trouble, but thought to be able to handle it- at least for now. As Jay Elias wrote, at DocuDharma:
The FDIC-insured deposits at WaMu (which, I will point out, include my checking account), are greater than the combined total of the FDIC's deposit insurance fund and their Treasury credit line. By law, to obtain further funds to meet their deposit insurance obligations, the FDIC requires an act of Congress.
Which means delay. In the case of a rapid meltdown at WaMu, some depositors may have reduced access to their funds, which is exactly what the FDIC is supposed to prevent. Further, many business accounts at WaMu and other banks periodically have more than the insured $100,000 on deposit, in order to meet payroll obligations for example. Those firms will need to either alter their deposit patterns or move their accounts to other banks in the next 48 hours to insure that they will not risk their deposits in case of failure. Other depositors, concerned about the inability of the FDIC to immediately insure all deposits may withdraw funds in advance of the possibility. As anyone who has seen It's A Wonderful Life knows, this is what is called a run on a bank.
But the problem goes further: if WaMu does fail and require FDIC assistance, there will be no funds remaining in the deposit insurance fund.
Yves Smith wrote yesterday, "I guess it is now official. We no longer have functioning trading markets, at least in terms of serving their alleged purpose of giving companies access to capital."
So, who do we want running the country, for the next four years? John McCain, who remains adamantly delusional, admits to not understanding the economy, and thinks the problem is but some bad apples on Wall Street? How about his amateur, D student sidekick? Or how about Barack Obama, who recognizes a true crisis, when he see it? How about a candidate who is not wed to any economic ideology, but seeks a pragmatic approach that crosses ideological lines?
But his record on the issue, and the views of those he has always cited as his most influential advisers, suggest that he has never departed in any major way from his party’s embrace of deregulation and relying more on market forces than on the government to exert discipline.
While Mr. McCain has cited the need for additional oversight when it comes to specific situations, like the mortgage problems behind the current shocks on Wall Street, he has consistently characterized himself as fundamentally a deregulator and he has no history prior to the presidential campaign of advocating steps to tighten standards on investment firms.
He has often taken his lead on financial issues from two outspoken advocates of free market approaches, former Senator Phil Gramm and Alan Greenspan, the former Federal Reserve chairman.
Mr. Obama set out his general approach to financial regulation in March, calling for regulating investment banks, mortgage brokers and hedge funds much as commercial banks are. And he would streamline the overlapping regulatory agencies and create a commission to monitor threats to the financial system and report to the White House and Congress.