And Wall Street is so brilliant?
WSJ: I’m not pessimistic about our country or our capitalist system: They are not the problem. I am pessimistic about whether our next president and the savants in Congress can deal with the massive economic issues we face.
Members of Congress, regardless of party affiliation or yesterday’s results, will continue to meddle in matters beyond their knowledge. In doing so they will exacerbate our current economic downturn and delay the recovery of our financial markets.
In recent months, Congress has displayed a fundamental lack of understanding of how our economy and our financial markets actually work. Members believe they can say a bank is likely to become insolvent and that will not lead to a run on the bank, or say a major insurance company is in trouble and not have insurance stocks tank. They believe they can extend a $700 billion Troubled Asset Relief Program (TARP) beyond its charter and not have every institution under the sun try to get what they believe is cheap capital.
Most significantly, although Congress is a large cause of the collapse of the home-mortgage market (witness the folly of Fannie Mae and Freddie Mac), members believe the markets are too stupid to recognise Congress’s culpability and will maintain confidence in Congress’s ability to resolve the financial crisis.
To restore confidence in the markets, Congress needs to demonstrate that it understands the nature of the problem it is trying to solve. Moving from TARP and the legislation needed to attack the liquidity and credit problems, it is beginning to address the foreclosure problem by “helping people stay in their homes,” and to increase economic activity by “stimulating the economy.” This sort of language does not bode well for a swift recovery.
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