And now, what?

After the passage of a pork-laden “economic stabilization” bill last week in Congress, there was a sense, reflected and promoted partly by some members of the media, that “things” would go back to “normal” or to at least “they way we were.”

However, that doggone Dow index is relentless, and the other markets in Europe and the rest of the planet seem equally indifferent to the hard work that went into the massive rescue package. It is not easy to add three hundred pages of “incentives” in only a few short days.
So, many people are now left wondering and muttering… now what?

No, this is not a “gotcha” moment and a lifeline will not do either. Let’s not be foxy about it.
What we may need is some deeper, complex and rather sophisticated understanding. No one can recompose the partly dilapidated structure of the global financial markets in a matter of days. It took us a long time to get here and it will take some time and effort to get out of this particular swamp; promises about the bill notwithstanding.

The negative evolution of the stock indexes around the globe are an indicator that investors, behaving like herd, are running towards safe assets, for now, and that there is a sense that there will be a credit crunch for a while until confidence about the future begins to shine above the dark clouds.

The primary strategy right now should be to design a multilateral plan conducted by the industrialized economies to massively intervene in the credit markets, not by simply infusing cash into the hands of broken institutions but rather by taking possession and control of their assets and managerial decisions. When markets fail apart governments can and should take over to improve their workings. But that is not about to happen anytime soon, although Europe stands a slightly better chance that the United States.

The credit crunch is real. Financial institutions are fearful and producers and consumers are more than cautious. And with elections right around the corner most investors will tie their assets to safety rather than risky credit. That always happens around election time anyhow, except that now the effect will exacerbate the fever.

The “stabilization” bill has granted too much power to the same kind of people who manufactured this crisis. The United States government has announced that it will hire many of the same people from Wall Street because they are better equipped to carry on the bill’s mandate. That is a good way to keep them out of welfare.

That also seems oddly ironic. Hiring the same sort of characters responsible for the crisis so as to write a different kind of novel?

It is little wonder that people are scared.

All and all, short-run policies should be geared to recover the faith on the financial sector, we need strong state intervention. Simultaneously we need to rebuild the structure of the financial sector and develop a pork-freer regulatory machine with credible, viable and enforceable mechanism upon which the medium and long run future would evolve.

The mission should be clear, without an adequate level of confidence we cannot possible walk out of the swamp… and that is the now and the what.

— Luis F. Brunstein