The Fundamentals of the Economy Are Strong?!?!? A New Twist McCain and “Psychology”

/in /by

The shit is hitting the fan on Wall Street today, as century-old banks suffocate under the weight of the Big Shitpile, AIG is hemorrhaging under its Fannie and Freddie holdings, and experts are holding their breath to see whether there’ll be a run on other investment firms. As the NYT WaPo describes, the consequences of today’s collapses will be monumental.

The U.S. financial system this weekend faced its gravest crisis in modern times, as regulators resorted to triage on Wall Street to contain the spreading damage from a meltdown in the housing and mortgage market. 

Two of the world’s biggest investment banks, Merrill Lynch and Lehman Brothers, appeared almost certain to disappear, Merrill into the arms of banking behemoth Bank of America and Lehman into bankruptcy. American International Group, once the country’s largest insurer, was seeking a financial lifeline. This came just seven days after the government took over housing finance giants Fannie Mae and Freddie Mac.

For all the drama of the weekend, these were the first steps — but far from the last — in finding a fundamentally new architecture for the financial world. The titans of Wall Street have, over the past 72 hours, been forced to reckon with the reality that the financial sector they built is, in its current form, too big, uses too much borrowed money and creates too much risk for the broader economy.

But in spite of the crisis, John McCain thinks the fundamentals of the economy are still strong.

"You know," said McCain, "there’s been tremendous turmoil in our financial markets and Wall Street and it is — people are frightened by these events. Our economy, I think, still the fundamentals of our economy are strong. But these are very, very difficult time. And I promise you, we will never put America in this position again. We will clean up Wall Street. We will re- reform government."

Between that claim, and McCain advisor Donald Luskin’s claim yesterday that "Things today just aren’t that bad," I can’t help but remember when, earlier this year, McCain repeatedly claimed that our economic problems were all psychological. Just pretend it’s not bad, McCain seems to believe, and it’ll all go away.

Though, given the scope of today’s crisis, I’m more worried about what this says about McCain’s psychological health than his lectures to us that our economic problems are all in my head. If McCain really thinks the fundamentals are strong, he’s not just dangerous, he’s nuts.

Update: Oops! Gave the NYT credit for the WaPo’s work.

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  1. JimWhite says:

    How can AIG restructure now when it seems likely that they will face further losses from Ike? Shouldn’t they have to wait until there is an understanding of that hit?

  2. BayStateLibrul says:

    We will be getting that “pyschological boost” when Bushie “calms the nation” within the hour.
    Agree with Jim above, insurance may be the next bubblebath.

  3. BayStateLibrul says:

    Forget No #2. Bushie just uttered few words on the financial crisis.
    Get out your duct tape.
    Everything will be ducky.

  4. AmIDreaming says:

    Purely by coincidence, about an hour ago, I turned to an article from early August by Jim Cramer in New York Magazine about how to drive Lehman out of business.

    The gist is, Lehman has been a super-vulnerable hedge target, and the hedge fund vultures haven’t overlooked the opportunity.

    So the question is, how much of Lehman’s collapse is sheer gravity, and how much of it has been a from a hard push? What kind of fortunes are being made right now *precisely on account of* Lehman’s spiral down the tubes?

  5. sailmaker says:

    I can see Steven Colbert mocking McCain as stedfast as Bush: “He says the same thing on Wednesday as he did on Monday regardless of what happened on Tuesday.”

    If only this were a laughing situation.

  6. brendanx says:

    In defense of McCain, he’s viewing today’s tempest in a teapost through the lense of his vivid memories of the Depression, as well as the five and half years he went without seeing his stock portfolio.

  8. radiofreewill says:

    The Bush/McCain Policies have enfeebled All of America’s Infrastructure:

    – Government is Un-regulated:

    Bush the UE has put himself, and the Unlimited Power he claims as UE, Above Legislative Oversight and Judicial Review.

    Result: Torture, Domestic Spying without a Warrant, Two Losing Wars, Politicization of DoJ, GSA, DHS, etc, etc.

    – Corporations are Un-regulated:

    The Subprime Mortgage Mess – typical of Bush/McCain ‘market self-regulation’ was an All-Call for the Unscrupulous in the Financial Markets to Steal Everyone Blind without any Personal Risk.

    Result: Engorged with Untrammelled Greed, the Investment Banking System is collapsing and taking many peoples’ long-term investments, savings and retirement, with them.

    – The Banking Industry Wrote Bush’s Bankruptcy Reform Bill:

    Making it harder for people to declare bankruptcy – and then fobbed the Subprime Mortgage Mess on US as Their Backstop for their Own Risky Play.

    Result: The banks are discovering that Making People Go Bankrupt according to their terms Still Sinks Them, too.

    Everything about the Bush Ideology – Power, Greed, No Personal Responsibility, speaks – no yells – of Complete Disrespect for the Citizens of Our Great Country.

    It’s always been All about Them Getting What They Want, and Lying to the Rest of US – Look over here! No, over here! – to avoid Accountability.

    Wake Up, America!

  12. campgranata says:

    I don’t understand if the fundamentals are good why the actual economy sucks.

    And for the person who attacked Herbert Hoover, he can no more be blamed for the depressed economy he inherited than Clinton can be given credit for the economic boom of the 90s. if the president could effect the economy positively why wouldn’t they?

    • foothillsmike says:

      Todays problems are the result of years of derregulation and of ignoring oversight. I am sure if Bush could make the problems go away but it is like trying to bail out a boat after it has smashed on the rocks.

    • brendanx says:

      if the president could effect the economy positively why wouldn’t they?

      Because he’s an incompetent ignoramus heading a party of crooks?

      Uh, Hoover lost to Roosevelt in 1932. The stock market crash was in 1929. A propos incompetent ignoramuses.

  13. AlbertFall says:

    Capitalism needs referees.

    Capitalism works, but Bush McCain bare knuckle capitalism always generates excesses, abuses, and pain for those who don’t control vast wealth.

    Reps hate regulation and government. Their hatred of government, except as a gullible customer to be bilked by private capital, creates the self-fulfilling prophesy of ineffective government.

  14. wigwam says:

    Though, given the scope of today’s crisis, I’m more worried about what this says about McCain’s psychological health than his lectures to us that our economic problems are all in my head. If McCain really thinks the fundamentals are strong, he’s not just dangerous, he’s nuts.

    IMHO, this says nothing significant about McCain’s psychological health. He’s just saying what he thinks will “play in Peoria.”

    I think they McCain is totally demented, but for other reasons, e.g., this by Kirk Murphy MD and that fact that the stuff McCain says is so often incoherent.

    • Leen says:

      Yeah and how does choosing Sarah Palin demonstrate that he is sound of mind. He knows she is not qualified. You can see it on his face when she is speaking. I swear he almost doubles over with guilt.

      His decision to choose Palin was obviously not for the country.

  15. Leen says:

    Oh those fiscal conservatives. Just talking with two friends who are both retired school teachers. They are both really considering pulling all of their investments out of the market.

    McCain has admitted that he does not know much about the economy. So for him to say the fundamentals of the economy are “still strong” is just McCain pissing in the wind.

    http://krugman.blogs.nytimes.c…..s-be-true/

    At a recent meeting with the Wall Street Journal editorial board, Republican presidential candidate John McCain admitted he “doesn’t really understand economics” and then pointed to his adviser and former Senate colleague, Phil Gramm – whom he had brought with him to the meeting – as the expert he turns to on the subject, The Huffington Post has learned.

    • brendanx says:

      The key is to use the word “strong” in a sentence. It conveys strength, the perception of which can be reassuring when a weakling is uttering the word.

  16. phred says:

    Just a quick drive-by to ask if anyone has seen any justification for why the Feds bailed out Bear Stearns and Fannie & Freddie, but decided to let Lehman and Merrill go down? I could understand rationales that would encourage saving them all or letting them all go down, but it’s not clear to me what determines whether or not the cavalry rides to the rescue these days.

  17. Leen says:

    EW , Bmaz anyone. I really do not understand the economy. Only from the angle that when you have bills you pay them and should not borrow beyond your ability to pay the money back. Given my understanding or lack of. On Washington Journal last week when guest were discussing the bail out of Fannie and Freddie they were talking about an “open line of credit” that had been extended to F&F when they had announced that they were in trouble.

    Where does the money come from in an “open line of credit” extended to these companies? Did Lehman have an “open line of credit” extension? Do the Welfare King and Queens (being driven around in black shiny SuV’s) who run these companies profit personally from these “open lines” between the time they admit that they are in trouble and when they default?

  19. JohnLopresti says:

    To me the vitiating influences have a lot to do with the way BushCheney spread war, and financed it. Usually the Democratic party has relied on making a war to rebalance the economy. Additionally, I tie the internet IPO goldenAge’s tapering with the mortgage aftershock. From my then vantage inside Silicon Valley the wild ride in home finance was evident, and lasted several years into the Bush Administration. Partly the oil price rise based on threats to steady supply, because of the war making in the oil zone added to the shift away from competitiveness in telco business. It was a wierd concatenation of things Republican that pushed the problem onto the backs of the middle class, there being less resilience in the backs of the poor in these times, and the affluent got their caste based taxcuts. All of these are things McCain’s Republican speech theorists will refuse to let him discuss. He is a tool of their machine. The Republicans never have admitted to how they source their funding for their specific version of the patronage system. They are going to lose middle class votes because of it at the elections in a few weeks.

    I was somewhat saddened to see Lehman stumble, but it was on a risk taking edge; Stearns had been foolhardy, but Lehman always had class. AIG I have little concern for. The terrist and response to terrist has changed a lot for insurance companies. The denial of global warming and refusal to acknowledge global warming means stronger hurricanes is part of the sham the administration has exercised upon insurers. Merrill Lynch I am glad to see engulfed by a principled, if stodgy, bank. There are a lot of good companies doing what Merrill Lynch has been doing, more insightfully than ML did it. ML was the only company a few years ago to manage to lose money on portfolios that increased in value, in one fund group I monitor. One of the interesting aspects of the washouts might be who the players are who fail to make it thru the gap to the next administration’s aegis. I would expect SEC’s Chris Cox to be pretty relaxed through the current turmoil. I think the US and global economy would be much worse if the Republican thoughtTank which is managing McCain were to have eight or twelve more years to promulgate the current shifts in the economy, gas $10. a gallon by 2012, food prices double yet again. I think it was ReaderOfTeaLeaves who the other day highlighted the character of AK’s economy as a perfect fit for the Republican gouge economy, to paraphrase (her). Perusing some of Palin’s news trail over the years has shown RoTL’s characterization of AK politics to be verisimilar, Republican, hinterland, business oriented, oilco driven; but, like the linked photo, a place with a cohesive vision that extends only back to 1958 when AK obtained statehood, the picture is of the parade at that time led by a new 1958 Ford Fairlane, a known gashog, with a flair for largesse at the vanguard for a resource extractive AK economy. Perhaps uncharacteristically, I am among the supporters of the Ketchikan bridge construction in Gravina, even though there is political pork for Sen. Stevens in the deal, as this drifts perhaps further OffTopic. The photos show the richness of the forest, and the headlong technique used for clearing to build the bridge’s connector road. Like events on Wall Street of late, a key issue seems to be whose cronies enjoy the most favorable outcome. I suppose I just like bridges, and facilitating people’s commerce. But, reportedly, if one lives in MI and has had foreclosure papers served, and plans to vote, one needs to be prepared for a caging list challenge based on those court documents’ having published the names of all persons who have had mortgage problems in MI. A way to convert middle class economic strife into Republican advantage on election day; some of McCain’s thinkTank are denying that scheme, but some are less disengenuous.

    • readerOfTeaLeaves says:

      with a flair for largesse at the vanguard for a resource extractive AK economy.

      Precisely!
      The mindset is still a Gold Rush mentality (which you’d have seen in Silicon Valley, and I saw while sitting among what I call ‘paper millionaires’ — most in their 20s — in the Puget Sound region about a decade ago).

      But the software boom had a different culture — one that values environmental and natural resources.

      The Alaskan culture that I’m familiar with…. no regard for anything other than getting as much money, as fast as possible before the next jackass shows up to grab what’s leftover. It’s been so coddled by government policies and loopholes that it’s never, ever really had to cut it in ‘the real world’. For all their talk of fictions, they’ve created the biggest fiction of all — that no matter how much destruction you wreak, there are no consequences.

      Well… my only surprise about Wall Street today is that it’s happening before the election; McCain must be collassally pissed at the timing.

        • readerOfTeaLeaves says:

          FOTFLMAO.

          Actually, probably more related to the fact that the don’t have anyone left to borrow from, because credit lines have been collapsing for at least 7 months now.

          George Soros is the one person who always seems to see the Big Picture pretty clearly. He predicted most of this back in early 2006 in his ‘The Age of Infallibility’. No wonder the wingnuts can’t stand him; he sees right through their bullshit and it makes them crazy.

  20. JohnLopresti says:

    Ph, my say, Stearns went to a more conservative outfit, as did Merrill, Mac and Mae were the center that had to remain undisturbed, until someone does the national debt update and sees the middle class is going to pay for the bail of Fred and Fannie. Lehman was less Republican, more smart, and perhaps too daring; Morgan and BofA likely both chuckled that the administration idly watched bemused as Lehman declared end of activity, though disposition of assets still may be interesting; there was a lot of creativity at Lehman over the years.