About the US$700bn, the congress is set to agree to the terms of the bail out. The executive sponsors of the bill and their counterparts in the congress have been meeting for the better part of the last four days. Dramatic events I tell you because of the scale and magnitude of the imminent financial crisis, an eventuality this present government wants to prevent at all cost.
The turn of events in the past five days have been shocking to say the least. It is like a domino effect now because we do not the next financial institution that will fall victim. The government had to take over Washington Mutual yesterday evening. This whole mortgage debacle has really exposed the economic model of the United States and it has forced so many of the investment banks to reorganize their base. All investment banks are going to be bank holding corporations, which at the expense of tighter regulatory oversight will guarantee them a better liquidity position against cyclical upswings.
Execution compensation has drew a lot of attention. The opinion shared by most in the country – especially the congress – is that if not monitored closely the bailout will just act as cushion to guarantee the already bloated compensation of those bank executives. The congress wants to draw up a mechanism that will put a cap on the amount of money in severance packages, options etc.. that will accrue to bank executives. The treasury secretary, Hank Paulson, is in a bit of conundrum because as an ex-CEO himself, who has benefited from huge executive compensation, now faces a possible quid pro quo with the congress in terms of the aforementioned – he has trade in acceptance for the cap in order for the bailout plan to progress in congress.
There is no doubt that the economy is in dire straits because of what economists call, “de-leveraging”. I call it “credit makes the economy go round, without which the economy contracts.” The political leadership of this nation is really up against it right now. Their policies in the past 8-years at the helms of affairs hasn’t done much for this country in terms of economic sustainability and stability. It seems to me therefore that America will go to the polls in November with their faculties wired-up concerning the present economic realities and their expectation for the future. As the Obama campaign slogan goes, “McCain is not a change-agent but much of the same (meaning Mr. Bush’s ill-conceived political & economic policies).
A group of economists wrote a open letter to the congress concerning the bail-out plan. You can read the letter at http://freakonomics.blogs.nytimes.com/2008/09/23/economists-on-the-bailout/
I must add these are pretty radical economists – my kind of folks – and their position is strictly based on challenging conventional positions. The freakonomics blog – a blog that started as a product of the book with the same title – has contributors that represent some of the finest economists in America. I’m sure you will really like their viewpoints.
Finally, Mr. McCain tried an “ogbon-agba” on us when he said he was suspending his campaign in order to return to Washington to help get a consensus on the bailout plan. Quite frankly, Mr. McCain and his campaign team bought that anyway. I saw the press conference and I thought he was strategically adjusting the truth. Obama quickly refused to accept his proposition for the postponement of the presidential debate. I hope he shows up for the presidential debate tonight in Mississippi.
Interesting times daddy! Signs of the last days!
