The U.S. financial crisis should be on everyone’s mind. It’s a serious situation. A private investor simply can’t hold money market paper right now. So added to the mortgage mess is a liquidity crisis that’s never happened since the run on banks in the Depression. So you can’t do nothing. The liquidity situation has to be dealt with.
We’re getting an object lesson over the next few days on making decisions under uncertainty. And the uncertainties faced by Chris Dodd and the other congressmen are of the type that are characteristic of real decisions. No one’s going to be able to put “error bars” around anything other than in a wild-eyed guess sort of way.
While we got intimate details on the politics and theatre of the “deal”, explanations of exactly how one gets from A to B are less available, or for that matter, what A and B are. We all know that there’s a problem. We know that there are a million non-performing mortgages and that no one wants to hold money market paper right now. I don’t really understand how the dots connect; I’m prepared to believe that they do, but it would be a good idea for someone to stand up and show how they connect. I know that the bailout plan is priced at $700 billion, but after watching CNN almost all day yesterday, I don’t know what the plan actually is. I know that nerves are frayed, but surely there are some people that can start explaining what the plan is and why Main St should support it. If it’s a good plan, I’m sure that Main St will, but explanations of the concepts and why it’s a good idea should be out there so that public opinion can be mobilized.
If I were in the room charged with making a decision, if I had my druthers, I think that I’d seek out the opinions of Warren Buffett, George Soros and Boone Pickens – three very different and highly successful people knowledgeable about markets, but not directly involved in the fiasco. And someone from a Wall St firm who’s steered clear of most of the mess. I guess J.P. Morgan Chase seems to have done better than most. Wouldn’t it be nice to see some of these guys on CNN saying what they think? [Note - again, I'm not saying that these guys are angels, I'm just saying that I'd like to know what people who haven't been in the mess, think of the solutions.]
[Note: here's an interesting take on the situation earlier this week by Conrad Black from his jail cell. Regardless of past hubris, Black is also a very smart guy, knowledgeable about markets and history and well worth listening to. I agree 1000% with his point about China. Also, to keep the $700 billion bill in perspective, Black says that the annual US current account deficit is $800 billion.]
The first people that the committee has to listen to are Paulson and Bernanke, but it would be awfully worrying having to rely on anyone who’s been directly involved in the supervision of the failed institutions.
At the end of the day, the people in the room, regardless of their past histories, have to make decisions and it must be very hard for Chris Dodd and people charged with making the decision to figure out who to trust. [I mention Dodd here, because, after watching hours of this on CNN yesterday, he struck me as the person in the game that seemed both willing and able and I’d personally go along with whatever he decided. [Note: many people have observed that Dodd is part of the problem and he may well be/probably is. Having said that, until someone else is running the committee, that's who's there. And if a decision has to be made, the incumbents have to make it. Only one decision is going to be made, even if it's a decision to do nothing or to hoist the thing until the next administration. This comment doesn't mean that I think that he is free of responsibility in this mess or that I "endorse" him or that he has the "solution". I have no idea on the matter; indeed, I don't know for sure that there is a solution or even exactly what the problem is, other than serious people say that there is one. People have observed below that Freddie Mac and Fannie Mae have been huge lobbyists and contributors in Washington and that may well be part of the problem. But we've been told by politicians in both parties that it is a crisis. And the collapses of AIG, Washington Mutual, Bear Stearns and Lehman Bros are sure evidence of a crisis. And this is in an economy with GM and Ford on deathwatch. I don't know whether there's a solution or even, as I note below, exactly what the problem is. If I was in the room, I'd want to understand the problem better than I do right now. But at the end of the day, somebody has to make a decision, even if the decision is to do nothing. Doing nothing might be a rational decision, but it's a decision that should be made intentionally. And while the people in the room may have created the mess, until new people are there, they're still the people that have to make a decision. So any decision that's made right now - even a decision to do nothing - is by definition going to be made by people who presided over the mess.]