Mortgage rates are stuck just above 6 percent, but at least they’re not blowing up or shut down along with the rest of the credit world. We and our peers are operating normally.
Passage of the rescue bill has pushed up long-term Treasury rates, as markets anticipate large sales of new Treasury bonds to raise bailout cash. The stock market has stopped nauseating freefalls twice this week. These moves also reflect hopes for coordinated global central bank rate cuts over the weekend and a Euro-zone version of our rescue package.
New economic data are awful, with GDP obviously contracting in September. Auto sales fell below 1 million last month, 26 percent below last year. The always-reliable purchasing managers’ "ISM" manufacturing index plunged from an expected 50 reading to 43.5 (50 is a breakeven economy, 44 is recession). New claims for unemployment insurance are running a sustained half-million each week, double the rate in a healthy economy. Today’s crusher: Payrolls fell 159,000 in September, half-again worse than forecast.
Before political and financial follies, the highest possible honor goes to Sheila Bair, FDIC head, for grace under pressure. She has gotten us out of WaMu and Wachovia with no hit to the insurance fund: no fuss, no mess, on time. To those of you worried about your bank accounts and stashing greenbacks: cool it. I think our banks are fine, now.
This week we have been in the worst moments of the largest "run" in history, nothing remotely comparable, in part because of these damned elections. Civilians and experts alike have been terribly confused, trying to understand what is happening.
Two things have complicated comprehension: Until the last two weeks’ disaster, this was the slowest-moving run in history, starting 14 months ago. A "walk" on banks, no matter how massive, does not focus the mind of Main Street voters. Second, this run has been at wholesale, bank-on-bank, money-market fund on commercial paper, funds on munis … but no lines of depositors, no deposits lost.
That missing panic on Main Street is the largest reason the House flinched on Monday, and "nay" voters still do not understand the fantastic and lasting harm they did. Rejection instantly caused the stock-market loss of $1.2 trillion and spread the run all over the world. There is only one way to stop a run, and that’s with an unlimited mass of cash: Drive up with a big truckfull, and start throwing bales of it at old ladies in the run. Flinch, and even this redo loses force. The global element: The United States is the only domestic-driven economy on the planet; the rest of the world earns its rice and strudel by selling stuff to us. If our Congress appears locked in craniosacral inversion then the whole world is lost, and so it traded all week long.
More politics: The whole House faces re-election in 30 days, with many new Democrats from conservative districts, and many Republicans fighting a Democratic wave. President Bush is unable to fly top cover, to "go to the people" in a compelling speech. He is also the lamest duck of all time, and the House has no fear of him. One congressman said of Lyndon Johnson, "If he wanted your vote, and you resisted, you had the strong impression that electricity to your district would be cut off and never turned on again." In 30 days we will have a president-elect deserving fearful respect, order restored.
The bill has passed, but execution of the absurdly complex plan will take a month or more. A lot of people are coalescing around a simple and fast "Reverse Sutton." Willie Sutton focused his legendary work on removing cash from banks. Instead of all this horsing around with re-underwriting toxic securities one at a time, buying at auction and re-selling, just give banks the capital they need. Do it in exchange for ownership, long-term workout and by accounting fiction, not by selling new Treasurys.
Even then, we’ll have to jump-start the system, get bankers back to making loans. So, let’s invite the big dogs — BofA’s Lewis, Citi’s Pandit, Morgan-Chase’s Dimon — down to Guantanamo for the weekend: "Gentlemen, meet the bucket and the board. …"
Lou Barnes is a mortgage broker and nationally syndicated columnist based in Boulder, Colo. He can be reached at firstname.lastname@example.org.
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