First things first.
Last night I was on KFYI, Terry Gilberg's show, for the full two hours. If you want to listen some folks from the forum grabbed the stream (sorry about the quality; its what happens with internet streaming) and you can find it here.
I strongly recommend doing so.
(If other media folks would like to set up similar time, either radio or TV, use the contact link at the bottom of the page and send me a phone number. I'll call you immediately to set it up.)
About 1/3rd of the interview and time was spent on politics as it intersects with this mess. Bless Terry's heart, but the sad fact is that both John McCain and Barack Obama are simply not putting this crisis in the proper perspective, and thus, neither can be supported.
John McCain, in particular, has a singular problem in that one of his closest economic advisers is Phil Gramm. Well, "was".
See, Phil Gramm said we were in a "mental recession". I commented on this at the time in The Market Ticker, and I wonder Mr. Gramm - how "mental" is your recession now that people have seen 40% of their 401k evaporate into the ether?
Never mind that Phil Gramm was one of the three sponsors of Gramm-Leach-Billey, the law that made this entire mess possible by deregulating investment banking, along with tearing apart major other components of Glass-Steagall, the Depression-era legislation intended to prevent a re-run of the 1930s.
Yeah. One of McCain's primary economic advisers, and one of the men who has shaped his campaign's economic policies from inception, a set of policies John McCain has refused to step back from, is the very man who is largely responsible for the mess we are now in.
I'm supposed to vote for a man who takes advice from the man who caused this meltdown? Uh, I don't think so.
Quite frankly, I find John McCain's reaction to the economic and market meltdown alarming. Barack Obama isn't a lot better; he's getting advice from people who have monstrous conflicts of interest such as Warren Buffett, but at least he's trying. His recent statement of wanting to allow "cramdowns" of first mortgages by judges is in fact a positive one, as its a reversal of the bankruptcy "reform" law in part that has put people in a position of debt slavery.
However, let's not forget that neither of these candidates has proposed one thing that will actually address the underlying issue - trust. Therefore it is time for them both to Exit Stage Left, and adults to take their place.
Perhaps Bob Barr.
I know, I know, nobody wants to hear about third party candidates because "they can't win." Ross Perot took a credible run at it, didn't he? Can Bob Barr? This close in, perhaps not. But this doesn't mean we shouldn't try, and frankly, while you can argue over the other specifics of The Libertarian's policies (and I do, especially when it comes to foreign and energy policies) without a functional economy there isn't anything else to worry about.
Bob Barr's campaign is the only one to flat out say that The Fair Tax is a reasonable alternative to what we have now, that calls for accountability to Congress for The Federal Reserve (and other monetary organs) and calls for reform of government spending in a fashion that actually means something.
Is their platform perfect? No. As I said, there are points on which I disagree.
But without an economy, what else do we have?
Nothing.
And unless John McCain changes his tune, and fast, choosing either of the two "main" candidates will guarantee the destruction of our nation's economy.
I sent a letter to McCain's Headquarters, along with Governors Ridge and Keating, this afternoon. I think everyone should read it. It lays forth the fact that absent dramatic change - and calls for that change, explicitly - John McCain has no chance in the election. None. Zip. Zero. Nada.
More alarmingly, that electoral map puts The Democrats within one vote of a filibuster-proof majority in Congress.
ONE VOTE.
The Wall Street Meltdown is clearly fingered as the item that changed the electoral map in ways that are, absent decisive action, unrecoverable. The time line does not lie.
This is not, as you might imagine, the first letter I have sent to McCain's campaign. In fact I've lost count since I attended their "rally" in Washington DC in late July. I have been working like a banshee behind the scenes to try to get some common sense injected into his economic program, without success.
No more "behind the scenes" - that letter is a small sample of what he's had laid upon the table in front of him, and if the Republican Base (or any state coordinators who are tired of the BS coming from McCain's campaign) want the rest of the letters, contact me. Let there be no mistake made about it - McCain's campaign has had full and complete communication from me on this matter, as I identified him as having the best shot at being willing to address these issues of the two major candidates.
Thus far, I have been wrong. We will see if that changes, and if state Republican coordinators and leaders have "had enough" and are willing to get off their duffs and demand that Mr. McCain do something intelligent here, lest they walk off with their support and funding in the critical last month. After all, if McCain is going to ruin the economy (and so is Barack) why not keep your money instead of giving it to John?
If The Democrats get a filibuster-proof majority in Congress (which a month ago I would have said is fanciful - not any more!) then absolutely everything and anything that Barack Obama wants, he will get. There will be nothing to stop it.
If you're a Republican, if John McCain doesn't change course right now you're gonna need every dime you have given what's to come. Blowing it on pointless campaign contributions is the idiot's move of the century.
Snap that wallet shut right now unless McCain gets off his duff and adopts something similar to what I've been propounding.
Seriously.
Full disclosure: I am an oldtime Republican. Voted for George W Bush twice and Bush the elder. But never - and I do mean never - should you take from this that I think Republicans and Democrats do not bear equal responsibility for this mess, because they do.
This is not a partisan issue and those who strive to make it one are going to be responsible for making the mess worse, not better.
There is no "bipartisanship" involved in solutions here, nor "partisanship". There are only non-partisan solutions to this crisis.
The facts of what we now face and the choices we either must make or will be made for us:
- Leverage must come out of the system and will. We will get back to 12:1 or less one way or another. We can either do it under regulatory fiat, which is neutral and nails everyone, or we can do it in a disorderly fashion as Mr. Market imposes it upon us and wind up with a Depression in the process. There are no other options; this is reality whether we like it or not. Deal with it.
- Ditto for homes. If you think 20% down, 36% DTI and no more than 3.5:1 home price to income is going to be avoided, you're wrong. Again, we can either do it by regulatory practice and principle, or we can do it in a severely disorderly fashion (what we have now) as one market after another crashes and burns, taking people out to the woodshed and bankrupting both them and the institutions serving them. Deal with it.
- Full financial balance sheet disclosure. It will happen. Again, it can occur one of two ways - either by regulatory fiat or it will happen as firms that refuse to do so go bankrupt, one at a time, as has been happening in a disorderly fashion. Down the "disorderly" rabbit hole lies the destruction of our financial system in total, a DOW that trades at 2,000 or less, an S&P 500 that trades at 200 or less, 25% unemployment, a Depression worse than the 1930s, no recovery for a decade or more, Social Security and Medicare being rendered insolvent and a potential default on American sovereign debt. Deal with it.
To those who say "it can't happen" I point you at Iceland, where it already did happen with zero warning - they went from "under stress" to "screwed" literally overnight!
Iceland imports food and energy. Their currency collapsed by 2/3rds overnight which means those imports (along with everything else) instantaneously tripled in price.
Iceland is the first but will not be the last. There are a half-dozen other nations in the general area of Europe who are in at least as bad of shape as Iceland was just before it collapsed and America is not that far behind. In fact there are large global banking interests that current rate the US as about "number eight" in terms of credit risk for sovereign debt (that's right, 8th worst), in the general area of nations like Iceland, Pakistan and similar.
Why?
Because our government refuses to tackle the problem head-on.
Because our people refuse to demand that our government tackle the problem head on.
Because we still think we can have our cake and eat it too.
We cannot.
We will not succeed with this "plan" of (in)action.
If we do not wake up and face reality, we will have reality served up to us, and it will not be a pleasant experience.
The EU has decided to guarantee interbank lending, doing what the G7 refused to announce after their meeting. But they remain cautious:
"``I don't even want to imagine what might happen'' if the markets react negatively, Klaus-Peter Mueller, head of the German banking association, said earlier today in Washington before the blueprint was unveiled. The market response may be something ``we haven't seen at any stage in our lifetimes.''"
No kidding.
This should slam Euribor (Euro Libor) to the mat. It better.
If it instead spikes it higher then the game is over and markets around the world will instantaneously collapse in unison - both stock and credit. Bunds, Gilts, Ts, all of them will get sold in a furious attempt to raise cash to meet ever-spiraling margin calls and liquidation of leveraged positions.
What you saw last week was not "as bad as it gets."
Last week was a warning of what can happen (and will) if trust is not restored immediately.
That, if it occurs, will be "as bad as it gets."
Trust cannot be restored by "papering over" the problem. It can only be restored by actually doing things that enhance trust.
Actions that our leaders so far have refused to take, and our citizens have refused to demand.
You must choose America, and you must choose today.
Choose wisely.
Economics
