Congress to Blame for Credit Crisis
October 9th, 2008 by Hakim Bangash
As you literally if not randomly walk down Wall Street these days, the most striking sight is the incredible obliviousness of the tourists. Sitting atop their double decker buses listening to some historical anecdote about the Trinity Church, they’re probably even unaware of how their currency is collapsing with every turn the bus makes.
Less striking but more worrisome is the lack of ‘complete’ panic that the news media says is on abundant display. Rather, it seems there is a widespread nervousness and concern, but in my guess, not panic. Not yet.
I’ve heard many conversations in the past few days of people speculating about how they would invest with $100 (thousand, million, fill in your blank) if they had it and didn’t need it for 5 years. Or rather maybe not how but when they would invest. That is, when would they buy into this crashed market. The buy-in price has already moved against Warren Buffett’s announced price for Goldman and GE. Does that mean a 1000-point intraday rally is all the closer to happening?
Maybe. And maybe it’s worth it to drop everything in your life to watch the market for countless hours on the hope of day trading into the mega-bounce. But aside from those lottery-like odds, the point is that is doesn’t matter. This crisis was never about the equity markets but the credit markets. Credit began to seize up as of last August and came to a cataclysm last month. There is a long list of blame for the illness but for my two cents, there was 1 primary reason (and possibly a second) for the massive heart attack.
The primary reason is plainly the US House of Representatives. Their shameful and craven delay reveals both their ignorance and their selfishness. The ignorance is obvious - not a single one could articulate even a grasp of the underlying issues. Just platitudes and politicking. You may be familiar with the phrase “time is of the essence.” It is probably too hackneyed these days to have potency so it rarely means what it says. But in this case, it mattered. Meaning the House needed to act that very day that Paulson came a-knocking. Maybe, maybe the next day. But the 2-week debacle ruined confidence that could not be regained. The bailout package should have been passed on the first day. Quietly and overnight when no one was paying attention, and then announced with great fanfare first thing in the morning. But since the House is always up for (re-)election and they were 30 days from the next one and they cared for nothing more than their own jobs. All those phone calls from constituents - be it the kook left fringe that would not tolerate a “Wall Street” bailout (though Main Street affordable housing was a moral necessity) or the hard-core right wing ideologues that knee jerked against larger government and any “free market” intervention. The spineless congress people were too dumb to know how important was the urgency of their action and too selfish to give it a second thought. There are few if any clearer signs of a lack of leadership in Washington.
As for a second potential reason for the massive dislocation, the jury is still out on whether the Fed’s decision not to save Lehman was another major contributing factor. There weren’t a lot of supporters for Lehman in the midst of those hectic conversations except for maybe Geithner of the NY Fed. Otherwise, most everyone thought that letting Lehman go would actually be good for the markets: “let the free markets reign,” “save the healthy, let the dying go,” blah blah blah. Also, everyone thought Fuld was an asshole and based on his testimony earlier this week (I was surprised to see him even show up), he confirmed that he is indeed a first class asshole and all the congress people regard him as one.
Well, there is surely a long way to go in this period of value destruction, but there is one populist rant I can join in on. Since we citizens all are bailing out these banks, I’d prefer to see that they make their money as banks and not through usurious double taxation via those incredibly annoying fees. Overdraft fees, ATM fees, wire transfer fees. Can’t stand em. If these guys try to ‘fee’ their way back into revenue growth, I say we perp walk ‘em all!
October 10th, 2008 at 7:15 pm
Kim, There’s plenty of blame to go around before you start throwing mud at Capitol Hill. No great surprise, but Joseph Cassano of AIG probably goes to the head of the line. With AIG and Goldman worthy of scrutiny. Then Paulson and Bernanke come to Congress when the sky is falling and Congress is to blame?! Congress would have met your timeline if there hadn’t been an uprising in the Republican ranks and a suspended presidential campaign. Treasury doesn’t appear to be moving too quickly implementing the master plan. As for Congress, I will be surprised if the necessary re-regulation legislation gets passed.
October 14th, 2008 at 8:51 pm
Well put. I agree there is plenty of blame to go around for this financial armeggedon. It doesn’t begin with Congress because in general they are too ignorant to recognize their repurcussions. So when the intensely stupid or irretrievably corrupt like Frank, Cox, Dodd, Schumer, Abramoff et.al. are exploiting the system, it is not because they don’t care if they reap the whirlwind. It is because they don’t know they might be causing the whirlwind. However, scoundrels like Angelo Mozzillo and the Sandlers and the Ditechs of the world and Cassano (how many consumer laws did AIG violate in the past decade? and that’s just the ones they plead guilty to) care not what devastation they might cause so long as they line their pockets.
Since the storm analogy is so popular these days, let’s continue. When Katrina hit Louisiana and Mississippi, the immediate responsibility fell on the local, city and state officials. And they were remarkably inept. But the buck stops with the Feds (in this case, the White House administration) when the regional fails and the feds were almost criminally negligent. So too with this economic crisis. There were some villians, lots of bad guys, many buffoons, a bunch of wannabes, a couple flawed heroes and alas no true heroes. So, many were inept in setting the scene. But the House could have salvaged the confidence necessary to reinstate trust in the credit markets (credit from the Latin credere meaning trust). Instead, they were cravenly negligent when called to task. Throw all the bums out, I say.
October 14th, 2008 at 9:08 pm
Frank, Cox, Dodd and Schumer in the same boat as Abramoff?! Tough to establish “credere” with such a statement. Gretchen Morgenson in the Times on Sunday takes on on a tour of Paulson’s statements on the crisis over the past year.
The house had burned down by the time Paulson and Bernanke shouted “fire.” No pun intended.