Things seem to have gotten considerably worse since the last time I wrote about the economy. In just a few short weeks, we\’ve seen the following events:
- Fannie Mae and Freddie Mac (government mortgage institutions) get taken over by the government
- Lehman Brothers collapses and its assets are bought up by Barclays bank
- Merrill Lynch sells itself to Bank of America
- AIG Insurance gets bailed out by the US government
In response to this raft of bad news, stock markets all over the world predictably took a dive. The latest headline on the BBC news website is that the Bank of Japan has just pumped $14bn into the markets in order to improve stability. In Singapore, where my family still lives, people are apparently rushing to cancel their insurance policies with AIG – this crisis has had far-reaching effects.
If you want to know more about these issues there are far more authoritative sources than my blog to visit. Still, I felt like I had to say something about this, if only to leave a record of my own stand on the issue.
It occurs to me that we\’ve seen this before. It bears a striking resemblance to what happened in the 1930s. Then, the recession was caused by the bursting of a bubble and the subsequent freezing up of the financial system (although in that case they were dealing with a stock bubble rather than a housing bubble). And the root causes are arguably very similar – the lack of regulations on banks (then) and non-bank financial institutions (now).
So yes, I\’m in favour of extending existing financial regulations to cover these institutions, something which the people in charge (i.e. Republicans) seem very much opposed to doing – and this includes John McCain. Neither McCain nor his running mate/soccer mom seem to know anything about economics, and the people they rely on to know these things appear to think that everything is peachy and what we really need is even more deregulation. Remember Phil Gramm calling Americans a \’nation of whiners?\’
Barack Obama has a far more sensible and rational policy for addressing the root cause of the problem – why he isn\’t leading significantly in the polls because of this one issue is a total mystery to me.
(Actually, it isn\’t, really, given the kinds of ridiculous issues that people in this country tend to regard as important)