Interfluidity - Nutcase? Not So Much

Here's a post from one of my favorite econoblogs, Interfluidity.

Why did Friday come early this week?

Okay. So now I reveal myself for what I am. A conspiracy theorist, a nutcase, a crank.

But tell me, why did Friday come early this week?

Isn't it a tradition for bank reorganizations to be announced after market close on Friday nights? Isn't part of the reason for that to give markets time to chill out, think a bit, notice that the ATMs still work and the branches have not been demolished, to let the sun rise and shine for a whole two days, in order to diminish the possibility of people freaking out?

So, here is today's news cycle. Red State Republicans react to a unprecedented popular outrage among their constituents and refuse to get with the program. It is leaked that President Bush solemnly opined, “If money isn’t loosened up, this sucker could go down.”

Was he standing at the teller window with a note about a bomb when he said that?

And, for good measure, the government announces "by far the largest bank failure in American history" with less than 16 hours to market open.

That loud noise, was that the sound of a single gunshot? Have the robbers killed a hostage, to show that they mean business?

Yes, the irony is delicious that Paulson's plan has for the moment been scuttled by the ideologues that his party has cynically nurtured, by the base that the business wing of the party always thought they could play. And yes, the House Republicans' alternatives, as reported by Justin Fox, are laughable.

But that doesn't explain the sequence of events this evening. Nor does it excuse the fact, that if a legislative response to the crisis was so critical, a single deeply flawed proposal was thrown at the Congress a week before adjournment, under terms that basically said "pass this, or else". It is surely coincidental that the plan was the most generous and least disruptive policy possible to industry from which Secretary Paulson hails.

No, I am a nutcase. These are all public servants doing their very best for the American people in a difficult situation. We need to pull together, rise above politics. Our leaders would never manipulate markets to frighten and punish the public so that we fall into line. That could never happen in the United States of America.

I am dark. Secretary Paulson could have offered any number of proposals to help ensure that this collapsing house of cards is a controlled demolition. He and Dr. Bernanke had months to put together policy options, long months between the fall of Bear and the fall of Lehman to create orderly processes for disorderly events they knew could come. At the last moment, they offered one option, a particularly unpersuasive plan imperiously presented as a fait accompli. When Congress balked, they relented and offered a few crumbs so that the people we elected could nibble at the edges without altering the core. And today, when it looks like those crumbs might not have been enough, we have the largest bank failure in American history, announced, oddly, on a Thursday night.

The only difficulty I have with the claim that this is all orchestrated is the years of evidence that the Bush administration is simply incompetant to get anything done right, and only the accident that total disruption of functional regulatory systems is the goal of the Movement Conservatives makes their screw up of all plans appear like it was meant to be that way. WaMu has been going down for months, as anyone who paid attention to lending practices in California could have told you.

But that does not eliminate opportunism as a sufficient explanation for what has happened. Paulson et. al. has fiddled while the nation's financial markets smoldered, and when the flames shot up, saw an opportunity to extort more from the surrounding neighborhoods by threatening to let the fire spread unless they donated to the Firemans' [Big Brass] Balls fund. Not does it preclude a few fine folks in the banking sector from deciding to toss some gasoline on the fire to try to spook the Democratic firewagon horses into making a mad charge out into the taxpayer suburbs.

The deal is falling apart because the batshit crazy conservative Congress critters are foaming at the mouth over socialism and the Democrats are not willing to go down with the ship unless those same crazies are firmly strapped down to the gunwales. Paulson understands that he has only a few days in which to rob the nation blind and the longer it goes, the less likely it becomes that he can take the money and run.

Nah, not a nutcase at all.

Anglachel