There is something exciting about writing a blog as great
historical events unfold.
Things are changing from hour to hour. There is great
uncertainty – what seems likely at the time of writing may be entirely wrong by
the time it is read.
President Bush has summoned
a meeting of political friends and foes to get Congressional approval for a
seven hundred thousand million dollar purchase of fairly bad debt.
Consider that sum for a moment – seven hundred thousand million – a sum so large
that it is almost beyond human comprehension, so much that that it has to be
hidden behind a misuse of the word “billion”.
Just a few weeks ago, such a suggestion would have seemed
There are still many sound economic arguments against it. It
is wrong to reward the greed and bad management of the banks that made the bad
loans. Badly run businesses ought to be allowed to go bust. To rescue them will
encourage bad practice in future. A readjustment is actually necessary. The
market will right itself in time if no one panics. It is always bad policy to
do something for the sake of doing something. There was no rational basis for “there
will be a disaster if nothing is done”.
Against all these sensible points, there is only a single
fact, but it is decisive: “there will be a disaster if nothing is done” has
become a self-fulfilling prediction.
The markets have lost all confidence. They are now reliant
on something being done.
To its credit, the US Administration has now acted
decisively. Reasonable people like Treasury Secretary Henry Paulson, Federal
Reserve Chairman Ben Bernanke, and Sage of Omaha Warren Buffett are in favour of
such action. While the reservations of some Congressmen are quite legitimate,
the markets now expect them to join in that action, right or wrong.