The Drudge Report headline this morning is “Worthless,” and the article it links to is from the Wall Street Journal about the financial meltdown of Bear Sterns. While friends of mine are joking that this is just the latest manifestation of the Kjellander Curse, it’s not a laughing matter.
Former Treasury Secretary Robert Rubin is quoted as describing the situation where the Federal Reserve and Treasury Department were involved in the deal that had J.P. Morgan buying Bear Sterns as “uncharted waters.”
Being in uncharted waters, however, is nothing new. No one has ever seen an economy like we’re experiencing in American or across the globe today. What counts is the wisdom of our leadership, particularly as it pertains to getting enough people to understand that things can be made worse through over-reaction.
In an election year that is especially important. We’ve seen problems before. The tech bubble bursting at the end of the Clinton Administration caused a lot of pain for a lot of people. The WSJ article linked above refers to another example from just a decade ago:
“Bear Stearns’s sudden meltdown forced the federal government to come to grips with the potential collapse of a major Wall Street institution for the first time in a decade. In 1998, about a dozen firms, with encouragement from the Federal Reserve Bank of New York, provided a $3.6 billion bailout of Long-Term Capital Management that kept the big hedge fund alive long enough to liquidate its positions.”
Charles P. Kindeleberger’s book “Manias, Panics, and Crashes,” written in 1978 and updated since, includes several good quotes. Among them:
“Much has been written about panics and manias, much more than with the most outstretched intellect we are able to follow or conceive; but one thing is certain, that at particular times a great deal of stupid people have a great deal of stupid money…”
— Walter Bagehot, “Essay on Edward Gibbon”
“I can feel it coming, S.E.C. or not, a whole new round of disastrous speculation, with all the familiar stages in order-blue chip boom, then a fad for secondary issues, then an over-the-counter play, then another garbage market in new issues, and finally the inevitable crash. I don’t know when it will come, but I can feel it coming, and damn it, I don’t know what to do about it.”
–Bernard J. Lasker, Chairman of the New York Stock Exchange in 1970, quoted in 1972 in John Brooks’ “The Go-Go Years”
Frenchman Raymond Philippe is also quoted saying about his country in the 1920s, “I know my country well. It is capable of supporting anything with calm except a financial crisis.”
Leadership is always tested. In the coming days, weeks, and months, we’ll see if the Republicans we’ve elected to high office can handle the 2008 economy in such a way that leads more Americans to understand that one way to make things worse is to elect Hillary Clinton or Barack Obama President of the United States.
