After the Meltdown, A Saner America

The adrenaline-driven activity on Wall Street runs on emotions born of having lost faith that our financial crisis eventually will be resolved. Americans have had it so good for so long, anything less than prosperity sets off panic in soul and pocketbook.

Speaking of fear and panic, treasury secretary Henry Paulson is no help. Every time the man opens his mouth, he scares the hell out of half the world. The scratchy-voiced secretary needs a new speechwriter.

It would help if he could refrain from appointing people connected with Goldman Sachs, where Paulson was the CEO, to positions of prominence. Before Paulson, Bill Clinton's secretary of the treasury was Bob Rubin, another ex-Goldman Sachs CEO, who has much to answer for his role in the crash of 2008. Now Paulson is putting his Goldman Sachs protégé, Neel Kashkari, in charge of the $750 billion an anguished Congress gave him, thus adding to the rancid, conflict-of-interest smell wafting out of the Treasury Department. Instead of feeding the public paranoia, Paulson must make people believe that we are not going to suffer the general collapse that took place in 1933.

One positive difference between then and now is that in the United States and abroad, central bankers and ministers of finance are working in something vaguely approaching cooperation to hold back a financial atomic winter. Eighty years ago, it was every nation for itself--not that working together is coming easy, since each nation has different needs, capacities and constraints.

There is no rule book for how to get the banking system doing what it is supposed to. Paulson et al. must extemporize--which is messy. Nonetheless, in contrast to the early years of the Depression, the US government, the final refuge, is going all-out. God only knows what it will take--but since bankers only make money by lending money, sooner or later a few of them are going to be tempted to get back in the game. Then credit will begin to flow, as liquidity swirls through the rusty pipes of American finance once more.

It is asking too much to expect Washington to prop up the stock market. Regardless of the daily train-wreck on the New York Stock Exchange, at some point adrenal glands will run out of secretions and the stock market will settle of its own accord into a somewhat less hysterical pattern of ups and downs.

That may not be soon, if the market crash of 2008 resembles the gyrations that followed the 1929 crash. The Dow Jones company recounts that its famous average "plunged 52.7 percent in 1931 and 32.8 percent in 1937, but it rose 66.7 percent in 1933 and 38.5 percent in 1935. Daily volatility was also intense. Strange as it may seem, seven of the ten biggest up days in history, on a percentage basis, occurred during the 1930s."

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http://www.thenation.com/doc/20081027/howl