If banks won’t lend to other banks, let alone to customers, then credit markets will dry up. And that’s exactly what has happened. Fear, lack of confidence and trust, not only in capital markets but also in leadership, are creating a perfect storm.
The way to liquefy the markets, as administration and Congressional leaders advocate, is to follow the basic outline of the plan that the House defeated yesterday. The problem is that this is an election year, and the public views the bailout as something solely for Wall Street. In fact, it’s enjoying the pain and discomfort and anxiety that the markets are now experiencing, a perfect example of schadenfreude. Investors and banks and those who support them and benefit from them deserve what they get, or in this case not getting. We seem, even, in a punishing mood, and forgiveness may be a long time coming. That’s why Congressional leadership is having such a difficult time getting their caucuses to go along with the $700 billion rescue. Congressional rank and file, particularly in the House, simply won’t go along with a package that appears to bail out Wall Street. Their constituents are opposed and enjoying the spectacle, and their representatives won’t lead. They lack the courage.
Of course, such a do-nothing view is extremely shortsighted and troubling. Frozen credit markets are devastating not only to Wall Street but to Main Street as well. Endangered are not just the rich and wealthy; they’re not islands, and neither is the middle class. To think that what happens in one doesn’t affect the other is myopic. If you feel good about the pain that Wall Street is undergoing, how will you feel when the wave hits you?
The trouble is that if there is a crisis of confidence in financial institutions, there is also a crisis of confidence in leadership. President Bush, Paulson and Bernanke, Congressional leaders, public opinion makers, simply are not trusted. We’ve reached a state of mutual distrust, and no clear way out of this thicket seems apparent.
Posted by soberingnews 
