Wall Street's Economic Chaos Has Big Political Consequences
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"Fasten your seat belts, it's going to be a bumpy night!" -- Margo Channing (Bette Davis) in All About Eve .
Bumpy is no word for it. The news coming out of Wall Street makes what the three presidential candidates are saying beside the point. Cancel the fun. The bad news also bids fair to change the daily lives of 300 million Americans. No, kidding, folks. What's going on in the business world is as serious as it can get.
Events unfolding this week on the lower end of Manhattan will cancel out all the projects John McCain, Hillary Clinton and Barack Obama have been talking about. McCain will have to deal with the home truth that, though he may dig up enough soldier boys for the Middle Eastern wars, there is no money to pay for them. And thanks to the ever-shrinking dollar, other countries are not going to lend us more money to carry them on. We have run out of money: it's time to cut and run.
The billions that Hillary Clinton and Barack Obama would have had to spend to do the wonderful things they are dangling in front of the voters do not exist. Tradition has always allowed campaigning candidates to make promises they will not make good on, but this time they are bumping up against the limits of the plausible, let alone the possible. It might be helpful if they would ease off with the pretty pictures.
There will be no health insurance for everyone. No long-needed increases in teachers' salaries, no big infrastructure projects, no decent-paying new jobs for those laid-off workers in Ohio, Michigan and Pennsylvania, and nothing for single-parent (read mothers) households. There is no money. As things stand now we may have to spend hundreds of billions to prevent millions of people from being thrown out of their homes and billions more to prop our crooked, avaricious, heedless and duplicitous financial system so it does not come crashing down on all of us.
Just a couple of days ago the Federal Reserve Board committed a mere $200 billion to Wall Street to back up their rotten bonds. The news of that expensive move had hardly been digested when it was announced that the Fed would pledge untold billions more to keep the investment banking house of Bear Stearns from sinking with all hands aboard.
The floatation device was a hastily arrange purchase of the once prestigious, 85-year-old investment bank by J.P. Morgan for $2 a share, which a little more than a year ago was selling for $170 and as recently as a couple of days ago for $30. God only knows how much this will cost the government by the time the expensive, gory details are ironed out, something that will take months.
This news prompted the New York Times 's Gretchen Morgenson, one of the best business journalists around, to write, "What are the consequences of a world in which regulators rescue even the financial institutions whose recklessness and greed helped create the titanic credit mess we are in? Will the consequences be an even weaker currency, rampant inflation, a continuation of the slow bleed that we have witnessed at banks and brokerage firms for the past year?"
The answers to Morgenson's question may well be yes and even worse. As of now nothing is clear, nothing is certain and nothing can relied on. In the chaos which has taken over Wall Street, the Fed, the Treasury Department and the other organs of government concerned with managing the crisis, there comes a new announcement of a new remedy every hour.
Nobody knows if these remedies will blow off the hysteria and restore a modicum of order. Nor do we know who is being saved by our panicky federal officials. Are they saving some millions of jobs and homes, which may be in danger from the fallout stemming from this train of financial disasters? Or are they saving some of the most despicable rich guys to make an appearance in our society since the 1870s, when Jim Fisk, Commodore Vanderbilt and Jay Gould roamed the earth?
We cannot answer that question any more than we can Morgenson's. We are in unknown territory facing situations that have never arisen before and taking measures that have never been tried. For the present we know that Bear Stearns/J.P. Morgan has been saved -- sort of. We suspect that some thousands of Bear employees will lose their jobs in the near future; we know that the news of the latest Fed actions was quickly followed by a fall in stock prices in Asia and another dip in the value of the dollar.
In a few weeks this latest insult to the once-imperial Yankee dollar will express itself in higher gasoline prices. That will hurt, but it may be the least of our pain. No body, no government agency, no clutch of economics professors, certainly nobody on Wall Street can lay out a plan of action. We do not know the dimensions of the storm buffeting us but that it is huge and enormously dangerous there can be no doubt.
It would be dunderheaded to demand of our three presidential candidates that they and their campaigns do what nobody else can. We cannot expect them to offer a program of action. But it is not asking too much of them to cut down on the blue-sky promises and come on back down to reality. It would reassure some of the voters if they would acknowledge that we are teetering on one helluva big problem. It's going to be a bumpy night.
Nicholas von Hoffman is the author of A Devil's Dictionary of Business, now in paperback. He is a Pulitzer Prize losing author of thirteen books, including Citizen Cohn, and a columnist for the New York Observer.