Monthly Archives: September 2008

This was not a good moment to be reminded that the separation of powers, and the hypersensitivity of the US Congress to public opinion, sometimes have drawbacks. It would have been better to pass an imperfect bailout plan promptly than come up with an improved version after a delay of days or, heaven forbid, weeks–always assuming that it is improved, in the end, and does eventually pass. (I say more about this in a recent column for National Journal.)

Whatever gets voted through is not going to be the last word on the subject in any case. Nothing like it. The plan will be revised on the run for months and maybe years. Prompt and basically sound action with broad political support was the order of the day. The country’s politicians were incapable of it.

All the principals deserve a share of the credit for this truly astonishing shambles. The administration, in the first place, failed to prepare Congress for legislation of this kind. The possibility that something like TARP would be needed was easily foreseeable once Bear Stearns collapsed–which was months ago–if not long before. Yet the bailout plan was thrown together in a matter of hours and presented to Congress in an absurdly abbreviated form that said, in effect, authorise us to spend $700 billion as we see fit, or else. That was ridiculous–but no more ridiculous than embarking on a debate about the details of the plan, let alone about basic principles, as the credit system stood on the verge of complete breakdown.

It was an even graver mistake to take public opinion for granted. The implications of the meltdown for ordinary Americans were not promptly or persuasively spelled out. In another tactical miscalculation, the administration also talked up the scale of its rescue, the better to reassure the markets, rather than talking it down–as it could have done, by pointing out to the general public that the eventual cost of the action would likely be far less than $700 billion, and that there was at least the possibility that the taxpayer would come out ahead. This was a nicety left to the financial press to explore.

The president’s intervention–his almost comical attempt to exercise leadership–was worthless, at best. When George W. Bush recommends a course of action, you can feel support for it leaching away as he speaks.

The presidential candidates and their respective surrogates utterly failed to respond to the urgency of the situation. They put politics first, using the crisis to underline their campaign talking-points and to put the other side at a disadvantage, rather than uniting to back a plan that both candidates appeared to support (well, I think they supported it: this was not always clear). If they had appeared alongside President Bush and had passionately affirmed the need for the plan without equivocation or political point-scoring, I dare say the outcome would have been different. It was more important to the Obama campaign to underline the failures of the Bush administration, and to associate McCain with that failure. It was more important to the McCain campaign to distance itself from the administration and find things in Obama’s position to disagree with.

Facing a public unconvinced of the need for action and boiling with rage at the idea of using taxpayers’ money to help the bandits of Wall Street, Congress too capitulated. By the time the vote came round, both party leaderships in Congress were backing the deal. Yet 133 Republicans and 95 Democrats voted against it (with 65 and 140, respectively, voting in favour). Many of the members voting against face difficult re-election battles in November.

The Republican leadership blamed Nancy Pelosi’s stridently partisan speech recommending the measure for the strength of Republican opposition. On one level, this is a ridiculous complaint: in the end the Republicans are responsible for their own votes. Yet as I listened to Pelsosi’s speech my heart sank. I do think it remarkably disingenuous to say (as Barney Frank, Larry Summers and many other Democrats subsequently did) that it would be outrageous for a Congressman to change his mind on the substance of a bill just because he was embarrassed by a speech. Good heavens, that would be to behave like…like a politician. Don’t tell me a Congressman might sink that low.

Wavering Republicans, like wavering Democrats, needed cover to vote for a bill they did not like and that many of their constituents were objecting to. Pelosi chose to rub the Republicans’ faces in the mess. Twelve votes needed to switch to get the thing done. If Pelosi had struck a bipartisan note, I bet the measure would have passed.

Who is to blame? All of the above. It is a comprehensive failure of leadership. And Washington wonders why much of the country holds politicians in contempt.

In Friday’s televised debate between John McCain and Barack Obama, the candidates were pressed to say how the financial crisis and the proposed rescue scheme would affect their plans for government. The debate’s moderator – Jim Lehrer of the Public Broadcasting Service, who gave a master class in that demanding craft – was courteous but persistent on the point, and got nowhere.

Mr McCain defaulted to a standard talking-point: the need to get a grip, without saying how, on public spending. He again underlined his opposition to earmarks (local spending projects tacked on to larger pieces of legislation). He is right that they are abusive, but they are small in relation to public spending as a whole. Spending bills in the current year included $17bn (€11.6bn, £9.2bn) in earmarks, compared with total outlays of about $3,000bn, and a deficit of roughly $400bn. The Treasury’s Troubled Asset Relief Program (Tarp) envisages new outlays of $700bn.

Beyond earmarks, Mr McCain said, every government programme needed to be examined for effectiveness. A partial spending freeze should also be seriously considered. No doubt: all appropriate measures should be taken, and none that are inappropriate. But this broad position was his policy before the crisis broke. No need, apparently, to think again on tax cuts. For Mr McCain, apparently, nothing has changed.

The remainder of this column can be read here. Please post comments below.

After the last couple of days, McCain badly needed to win Friday’s debate. My immediate feeling was that he didn’t even manage a draw.

Obama was on fine form. He did not meander. His responses were calm and focused. He never looked rattled. He seemed comfortable with the issues and unthreatened by his opponent—sufficiently unthreatened to be generous to McCain now and then, an effective Clintonian (Bill) touch. McCain was prickly, rarely looking in Obama’s direction, repeatedly accusing him of failing to understand the issues—a difficult charge to make stick with Obama looking so assured. McCain’s aggression seemed to me at times to betray a lack of confidence. He had his moments; still, I thought it was a comfortable win on points for Obama.

Now and then I found myself thinking, “Remind me, what is it that they disagree about?” Health care, for sure, but that subject as usual came and went very quickly. Taxes? Again, yes, though both are pitching themselves as tax-cutters. Spending? Harder to say. McCain has his hatchet, Obama his scalpel: they both claim to be fiscal conservatives, intent on getting value for money. Who knows what that would mean in practice? McCain as always tried to make a mountain out of the earmarks molehill—saying it was emblematic of a wider culture of fiscal abuse—but I don’t know if that was very successful. He did score a hit on Obama’s support for the energy bill, but how many people watching know enough about that pork-laden legislation for the point to have registered?

As ever it was clear that they are guided by different ideologies. McCain is relatively pro-business, pro-market; Obama, despite the intellect and the pragmatic mindset, shows a wide streak of anti-business populism. But the debate did not really get at the practical implications. Questioned about the bail-out, for instance, they were unwilling to get into the details of their differences, if any. I’m sure Obama scores points with his simplistic “blame it all on deregulation”, and McCain’s pro-business prejudices are a handicap right now. But when the financial regulatory system comes to be made over, it will be a question of getting the quality of regulation right, not the quantity.

Turning to foreign policy, both men seemed intent on exaggerating what in practice might be rather slight differences. McCain still refuses to admit that the Iraq war was a mistake; Obama still refuses to admit that he was wrong about the surge. But that is the past. Looking ahead, McCain wants to wind US forces in Iraq down as soon as circumstances allow; Obama wants a timetable of sorts, but is not promising to get troops out by a certain date regardless. Both want to pour more forces into Afghanistan. Are their positions really so far apart? The long debate about meeting enemies “without preconditions” seemed to me entirely about semantics rather than the nuts and bolts of practical diplomacy. Either administration would make overtures to Iran or North Korea if it thought it might get results; neither would fly the president in for a chat without having a good idea in advance what the outcome would be. Dealing with Russia? Both men want Georgia and Ukraine in NATO.

Their characters and temperaments are very different, of course, but we already knew that. McCain goes by instinct and (yes) experience, Obama more by intellect and calculation. Ideally, one would have all of the above. Forced to choose, I prefer the latter, but can see there are pros and cons on both sides.

I thought the debate moved off the financial crisis too quickly, though it was not for want of effort by Jim Lehrer, who I thought did a superb job as moderator—relaxed, funny, courteous, self-effacing. (So it can be done.) I wanted to applaud as he cheerfully kept pressing his question about which aspects of their plans would have to change in order to pay for the bailout. McCain talked about a spending freeze (“it should be considered”). Obama acknowledged that some of his proposals might have to wait, but would not say which (and then listed all the main ones as so important they should go ahead regardless). Neither candidate, it seems, has given thought to the fiscal implications of the bailout. Perhaps this is a good thing. If either were to do that, they might wonder if they really want to win.

Everything that could go wrong did go wrong for McCain on Thursday. He stands implicated in the stalling of the financial rescue plan. His proposal to postpone Friday’s planned television debate ended up looking like a cheap political ploy, intended either to break Obama’s renewed momentum, push back the Palin-Biden debate, or even let McCain hide from his opponent. And that second theory, strained as it may seem, was made to look plausible by Palin’s truly dismal performance in part two of her television interview with Katie Couric.

Was this the same Palin who gave the convention speech – or even the less-than-stunning Palin of the Charles Gibson interview? She was simply awful. In response to straightforward questions, she was scared, rambling, incoherent, and at times completely unintelligible. She looked stupid. She gave her critics everything they could have wished.

Exactly what happened during the White House talks about the rescue package is unclear. Both sides were certainly playing politics – but there can be no doubt that the Democrats won the contest. McCain wanted to seize the initiative, look presidential, and get credit for bringing forth an agreement. The Democrats wanted to deny him that success (by announcing prematurely that a deal had been done), and to force him to reverse himself over Friday’s debate. McCain was dished because neither he nor the House Republicans who blocked the revised package could explain why they had done so: at any rate, they had no intelligent alternative to suggest. McCain apparently sat quiet through most of the meeting. He put politics aside and rushed back to Washington for this?

If I were McCain, I’d be dreading the next batch of polls. What does he do to retrieve the situation? I don’t know that it can be retrieved. Staying away from Friday’s debate is not going to help. He needs to turn up and win.

When I read this piece of a few days ago by Michael Barone, arguing that “the old rule that economic distress moves voters toward Democrats doesn’t seem to be operating,” I found it somewhat persuasive. He argued that blame for the crisis cannot easily be pinned on Republicans alone, and that voters may fear that taxes will rise faster under Obama than they would under McCain (regardless of the fact that Obama is promising more tax relief for most Americans than McCain), which in turn would be more bad news for the economy. But a new poll this morning seems to say otherwise.

Turmoil in the financial industry and growing pessimism about the economy have altered the shape of the presidential race, giving Democratic nominee Barack Obama the first clear lead of the general-election campaign over Republican John McCain, according to the latest Washington Post-ABC News national poll.

Just 9 percent of those surveyed rated the economy as good or excellent, the first time that number has been in single digits since the days just before the 1992 election. Just 14 percent said the country is heading in the right direction, equaling the record low on that question in polls dating back to 1973.

More voters trust Obama to deal with the economy, and he currently has a big edge as the candidate who is more in tune with the economic problems Americans now face. He also has a double-digit advantage on handling the current problems on Wall Street, and as a result, there has been a rise in his overall support. The poll found that, among likely voters, Obama now leads McCain by 52 percent to 43 percent. Two weeks ago, in the days immediately following the Republican National Convention, the race was essentially even, with McCain at 49 percent and Obama at 47 percent.

It’s just one poll, but still. I do think Obama is handling the crisis much better than McCain–not because he is suggesting better remedies (he continues to say little), but because his instinct to reflect before opening his mouth and his impeccable taste in advisers are both working to his advantage.

These factors I think are much more important than the supposed popularity of standard Democratic positions on economic management. Unlike McCain, Obama offers no instant bold responses, needing to be qualified or withdrawn or forgotten soon after. As ever, he looks calm, methodical and unruffled–and has his picture taken in conference with Paul Volcker, Bob Rubin and Larry Summers, who command wide respect. His response may be thin, so far, on content, but it is an altogether more reassuring posture than his rival’s tendency to hasty and exaggerated certainty.

This difference of intellectual temperament has often been seen as one of Obama’s biggest drawbacks, including by many of his own supporters. Sometimes his altitude over the issues, and his reluctance to commit himself to simple straightforward positions, have indeed hurt him. But the complexities of the crisis are putting those traits in a much better light.

An excellent column by Sebastian Mallaby looks at the unfolding Fed-Treasury plan and finds it wanting:

The plan is being marketed under false pretenses. Supporters have invoked the shining success of the Resolution Trust Corporation as justification and precedent. But the RTC, which was created in 1989 to clean up the wreckage of the savings-and-loan crisis, bears little resemblance to what is being contemplated now. The RTC collected and eventually sold off loans made by thrifts that had gone bust. The administration proposes to buy up bad loans before the lenders go bust. This difference raises several questions.

The first is whether the bailout is necessary. In 1989, there was no choice. The federal government insured the thrifts, so when they failed, the feds were left holding their loans; the RTC’s job was simply to get rid of them. But in buying bad loans before banks fail, the Bush administration would be signing up for a financial war of choice. It would spend billions of dollars on the theory that preemption will avert the mass destruction of banks. There are cheaper ways to stabilize the system.

In the 1980s, the government did not need a strategy to decide which bad loans to take over; it dealt with anything that fell into its lap as a result of a thrift bankruptcy. But under the current proposal, the government would go out and shop for bad loans. These come in all shapes and sizes, so the government would have to judge what type of loans it wants. They are illiquid, so it’s hard to know how to value them. Bad loans are weighing down the financial system precisely because private-sector experts can’t determine their worth. The government would have no better handle on the problem.

In practice this means the government would make subjective choices about which bad loans to buy, and it would pay more than fair value. Billions in taxpayer money would be transferred to the shareholders and creditors of banks, and the banks from which the government bought most loans would be subsidized more than their rivals. If the government bought the most from the sickest institutions, it would be slowing the healthy process in which strong players buy up the weak, delaying an eventual recovery. The haggling over which banks got to unload the most would drag on for months. So the hope that this “systematic” plan can be a near-term substitute for ad hoc AIG-style bailouts is illusory.

I’m a little reluctant to second-guess the proposal put together by Bernanke and Paulson because I don’t know everything the Fed knows about the fragility of the credit markets and the urgency of the case. But I agree that the RTC analogy is wrong, and the column is surely right about the problems the Fed-Treasury plan faces. The article goes on to mention separate alternative proposals by Charles Calomiris and Raghuram Rajan. Both stress the need to recapitalise the banks. Calomiris would do it through government purchases of equity, Rajan through mandatory rights issues and a prohibition of bank dividend payments.

You can read fuller statements of these interesting proposals here and here on Martin Wolf’s FT economists’ forum. (Be sure to read Willem Buiter’s comments on each article as well.) These ideas definitely have attractive features–but, to put it mildly, they are not without difficulty and involve complications of their own. For instance, Rajan says:

I suggest restricting the rights requirement only to well-capitalised entities. This may seem like penalising shareholders of well-performing companies. But in fact these are institutions that could use more capital very profitably in buying underpriced assets, and taking over weaker financial companies. Authorities could also reward these companies by facilitating acquisitions, possibly through favourable tax treatment. By contrast, forcing weak companies to issue rights risks tanking an already fragile share price, and is not a risk worth taking at this juncture.

Agreed: but how do we define a “well-capitalised entity” for the purposes of this mandate? If the bar is set too low, the “risk not worth taking” in that last sentence comes into play. Calomiris says:

To ensure that MPS [Matched Preferred Stock--his proposal for government purchases of equity] is only supplied as truly needed from a systemic standpoint, and to limit any abuse of the taxpayer-provided subsidy, the private sector would also be required to act collectively to help recapitalize undercapitalized banks, and share the risks associated with recapitalizing banks.

Specifically, to qualify for MPS assistance from the government, a bank would have to first obtain approval from “the Syndicate” of private banks (including the major institutions who would benefit from the plan as well as others who would benefit from the reduction in systemic risk) to commit to underwrite common stock of the institution receiving MPS in an amount equal to, say, at least 50 per cent of the amount of MPS it is applying for (at a price agreed between the Syndicate and the bank at the time of its application fro MPS). The Syndicate would share the underwriting burden on some pro rata basis. To support that underwriting, the Syndicate would have access to a line of credit from the US government (and from other countries’ governments, if non-US banks participate in the MPS system)… For banks participating in the MPS plan that are based outside the US, foreign governments would have to provide the MPS investments. Presumably, those foreign governments would also provide the credit line commitment to the syndicate for its underwriting of common stock.

Much as I like this plan in principle, I don’t think I would celebrate simplicity as one of its chief virtues.

It will be interesting to see whether Congress insists on a debate of these and other alternative strategies, or concentrates merely on larding the Paulson-Bernanke approach with additional subsidies for distressed home-buyers.

 

Every four years, despite ample evidence to the contrary, the US celebrates the myth of presidential omnipotence – of the office, at least, if not its occupant. The country is looking for the one man or woman who can do the biggest job in the world, take the 3am phone calls and use those awesome powers to set to rights all that is wrong, from the war on terror to indiscipline in schools, from economic inequality to the state of the roads. It is a cherished illusion. In 2008, the worst financial crisis since the 1930s has shattered it before the new president is even in the job.

The technocrats are in charge – Hank Paulson at the Treasury and Ben Bernanke at the Federal Reserve – and even they are making it up as they go along. President George W. Bush appeared briefly last week, noting that the country was worried about the current financial difficulties and saying, as though this were important information, that he shared those concerns. Wisely, he did not affect to take command of the situation (you thought the collapse of Lehman was a blow to confidence).

Over the weekend, Congress became deeply involved, because the Fed-Treasury plan to take bad assets off the balance sheets of banks and non-bank financial institutions will require congressional action. Even as the issue thus became intensely political, the president was off to the side – and will stay there, even if wheeled in to chair some meetings. What is true of the president is more true of the presidential candidates.

The remainder of this column can be read here. Please post your comments below.

Massive injections of central-bank liquidity and talk of an RTC-like agency to absorb potentially vast quantities of bad assets gave the markets respite, but one wonders for how long. I remember writing about the S&L crisis and the role of the Resolution Trust Corporation nearly 20 years ago. The notion that the RTC is a model or precedent for the kind of action now being contemplated is questionable. The RTC swallowed hundreds of little thrifts whole. It was not primarily a selective buyer of bad assets from huge ongoing entities. And the assets it acquired through this process were much simpler (hence easier to value and dispose of) than the assets in question today. This is to say nothing of the scale. The S&L crisis seemed enormous in scope at the time. It was puny compared to the situation requiring resolution today.

Looking back from this distance, one thinks of the RTC as a success. That may be its principal virtue as a “model”: it offers reassurance. At the time, however, the entire episode was a slow-motion mess, and politically fraught throughout. Almost from the beginning, the RTC was underfunded; more than once, its own collapse for lack of resources seemed imminent; and it was the subject of occasionally bitter, invariably partisan bickering for years. Democrats in Congress were usually reluctant to provide the additional funds requested by the Bush (senior) administration.

One thing the episode does underline–and this is far from reassuring–is the inescapably political character of a comprehensive, as opposed to ad hoc, response. Why was it the Fed, and not the Treasury, that quasi-nationalised AIG (not a bank but an insurance company, over which the Fed has no direct oversight responsibility)? Because the Fed has elastically-defined emergency powers that the Treasury does not. Deleveraging an entire financial system under duress is a protracted fiscal operation. In moving from instant-response-to-crisis mode to a comprehensive resolution regime which will have to be in place at huge expense for years, the Fed can no longer be the prime mover. And the Treasury will need legislation–not just whatever might be rushed through Congress next week or the week after, but on a continuing basis right through the next administration–to provide the authority and the cash for its actions.

When you look at the RTC model that way–take the current problem in all its seeming intractability; now give Congress a leading role–it is not so reassuring. But it will have to be that way. There is no alternative.

I am a huge admirer of Damien Hirst. Not of the art, which is rubbish, but of the sheer productivity and exuberance he brings to his life’s work of fleecing rich idiots. “Oh Damien, you’re a genius. Screw me over again.” “Why not,” he says, munching a bacon butty.

Global financiers, concerned about the markets and their stressed portfolios, can be relied upon to keep springing for yet another dead animal in formaldehyde, or some spots or butterflies or buckets of medicine bottles. The remorseless brainless repetition is surely part of Hirst’s joke. Nothing cheered me up this week so much as reading about how well his auction of more than 200 works, each of them painstakingly produced in factories occasionally visited by the artist, had gone. Nearly $200m for this stuff? It’s wonderful. I don’t begrudge him a cent.

Best of all is the lack of deceit or embarrassment over what is going on. The man invites journalists to his factories. They look around, then talk of his stature as an artist without laughing: I’m not whether sure they are in on the joke, or the butt of it.

In London Mr Hirst presides over two large industrial units producing the butterfly-wing pictures and his photo-realist paintings. In the Gloucestershire countryside he leases two wartime aircraft hangers for the manufacture of the spot paintings, the spin works and the formaldehyde tanks. He also has a large workshop and an exhibition studio. More than 180 people work for him, creating Damien Hirsts. Two specialists oversee the formaldehyde unit, which on a visit in July contained four dead ponies, a wild boar, an upended cow and, in good “Godfather” style, a horse’s head in a plastic bag.

In the workshop three women were talking about the “Hedgehog”, a device attached to a Hoover. It is a small plastic tube with 20 holes cut into it in which are inserted cut-down cigarettes, some ringed with lipstick. Switch on the Hoover and, hey presto, instant cigarette butts for lot 134 (top estimate, £300,000). In another workshop, three fabricators were painting precisely measured round circles at regular intervals on a white background. These are the famed spot paintings that Mr Hirst says were inspired by playing snooker. The fabricators choose which colour each spot is to be, and use ordinary household paint to apply the shades. The butterfly pictures are made by fabricators who are given the dimensions needed, but are otherwise left to themselves to choose the colours and designs they want. Having given his final approval—sometimes, one fabricator says, only by looking at a photograph—Mr Hirst signs and dates the back of the work.

I love it that the fabricators choose the spots’ colours. (Could they not also choose the shapes? This would only add to Mr Hirst’s stature, and the market value of the work.) He is selling batches of autographs at $200m a throw–with the added pleasure of knowing that a dead cow will soon be stinking out some plutocrat’s palace. Please do not suspect me of sarcasm. I offer him my sincerest congratulations.

Not long ago, as this financial crisis continued to worsen, I criticised the Fed at one point for seeming to panic (when it cut interest rates further and faster than expected) and the Treasury for attempting to delay the inevitable (over Fannie Mae and Freddie Mac). Today I owe both of them a commendation for acting prudently and decisively.

In an astonishing sequence of events, the government has nationalised Fannie and Freddie; has let Lehman go to the wall; showed it was willing to see Merrill Lynch go the same way; has all but nationalised AIG; and has held firm, for the moment, on interest rates. Without knowing what the Fed and the Treasury knew—especially about the systemic consequences of an AIG bankruptcy—it is impossible for an outsider to be sure, but all of these, I think, were good calls.

The bravest thing was to stand aside and watch Lehman crash. This was necessary not so much to draw a line in the sand, as some analysts put it—after all, one day later, the AIG intervention stepped over that line—but to affirm in the starkest possible way the government’s reluctance to put taxpayers’ funds at risk. Because of Lehman, and AIG notwithstanding, the Treasury and the Fed can credibly say that shocking financial collapses will be allowed to happen so long as the systemic consequences can be contained. If there is to be any hope even of mitigating the moral hazard unleashed by the current phase of unavoidable crisis management, this was a crucial message to send.

Denying Wall Street an immediate further cut in interest rates was brave too; and this also made sense. Before much longer, the Fed might be glad that it conserved a while longer what little powder remains in its arsenal.

We will see what the markets make of the AIG intervention in due course—but the immediate verdict on Lehman and interest rates was encouraging. Monday’s fall in share prices was bad but by no means terrifying, and the market rallied the next day. The dismantling of Lehman’s business had not caused instant paralysis, and was proceeding in orderly fashion. The authorities were surely braced for a far worse response, and are bound to think that they got off lightly.

All this, and a presidential election too. The bewildered candidates are doing what they must: trying to give the impression that they understand what is going on (something that eludes the people in the middle of it all) while mocking the proposals of the other side (which in practical terms are indistinguishable from their own). John McCain is so far seen as the loser in this, partly because his statement that the economy is “fundamentally strong” is seen as a gaffe, and partly because Barack Obama is a little more trusted by voters on economic issues. Bad economic news is thought to be to the Democrat’s advantage.

I doubt this should be taken for granted, and not just because Mr Obama’s lead on economic competence has diminished, oddly enough, of late. Attacking Mr McCain’s comparative optimism should not be taken too far: voters look to a leader for reassurance. Also, there is a germ of truth in the claim that the economy is fundamentally strong: who would have believed that the past year’s financial stresses could have failed, as yet, to drive the economy deep into recession? In its own way, this is remarkable.

When it comes to short-term remedies, I see little or no disagreement between the campaigns. Neither has attempted to second-guess this week’s initiatives. The Obama campaign is leaning heavily, and with much justification, on blaming the Bush administration for what has happened. But Mr McCain’s new “change Washington” strategy may have put enough distance between him and the White House to blunt this attack.

So far as the future is concerned, both campaigns agree that financial regulation will need to be tightened up. And whoever is president will confront a fiscal outlook (an undeniable legacy of the Bush administration’s incontinence) that is quickly going from bad to much, much worse. Neither campaign has come close to acknowledging the limits to the government’s ability to socialise the losses of its crippled new acquisitions while simultaneously priming the Keynesian pump with tax cuts and enormous new programmes of public works—all from a base of chronic fiscal indiscipline. If you were wondering what turn the crisis might take next, that would be one place to look.

Clive Crook’s blog

This blog is no longer updated but it remains open as an archive.

I have been the FT's Washington columnist since April 2007. I moved from Britain to the US in 2005 to write for the Atlantic Monthly and the National Journal after 20 years working at the Economist, most recently as deputy editor. I write mainly about the intersection of politics and economics.

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