The Fadeaway
The McCain plan:
Mr. McCain’s advisers said their hope was that the issue of the economy would recede somewhat from the public consciousness, now that Congress has passed a bailout plan, and open the way to try to turn the contest back into a referendum on Mr. Obama’s credentials. They argued that given everything that had happened, Mr. McCain remained in easy distance of Mr. Obama, evidence of what they said were underlying problems with his appeal.
That seems unlikely to me. The nature of the financial crisis certain did provoke a white knuckle tone to press coverage of the economy that’s unusual. But dramatic financial crisis or no dramatic financial crisis, the combination of job losses and near-universal agreement that we’re in for a recession would seem to guarantee a hefty focus on the economy. You could imagine something changing that — a terrorist attack or some kind of foreign crisis could easily push the economy off the front pages temporarily — but it’s hard to imagine it happening just as a process of fading.
35 Responses to “The Fadeaway”
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October 5th, 2008 at 2:00 pm
This is unlikely simply because the bailout will require time to work. The mark to markup “fix” will resolve some of the problems, allowing banks to lend somewhat more, but for many of the larger ones, it’s likely that the rule change will just allow them to avoid insolvency.
The actual process of identifying, valuing, and purchasing toxic debt probably won’t even begin until after Election Day, and in the meantime, the credit freeze is spreading internationally, which will particularly hurt since so much of our economic output is now dependent on exports. Weekly unemployment claims will continue to grow in the coming months, with a new record being hit probably each week through December, and without a recovery likely until 2010. Plus, the weather is changing rapidly as we head into winter and the currently somewhat abstract heating oil issue will decimate McCain’s chances in the one Northeast state where he’s competitive, New Hampshire. Retailers will begin releasing reports to dampen expectations for the Christmas season, just so their stock prices won’t drop too much when the actual earnings reports come out, and that’s just the bad news from off the top of my head.
Really, it only gets worse for McCain on the economy now, particularly since Obama is pointing out that he wants to tax health care benefits.
October 5th, 2008 at 2:00 pm
It’s never smart to bet that “It’s the economy, stupid” is a losing proposition.
October 5th, 2008 at 2:18 pm
The allegation that Obama has repeatedly had lunch with an aging education professor who did some crazy stuff in the ’60s will, once people become more aware of it, surely prove fatal to his campaign.
Ambinder was among those who noted that Sarah Palin’s husband was a member of a political party that advocates treason, but then said: “many professional conservatives genuinely believe that Obama’s association with William Ayers — more accurately, he refusal NOT to associate with him — is a genuine reflection of Obama’s poor judgment, whereas no one really cares about why Sarah Palin stayed married to her husband. He seems like a good guy, a loving father, hard to find in a chaotic world, and that she didn’t dump him because he associated with some dum-dum secessionists is probably a sign of good judgment.”
Which is fair enough in its way, except that WILLIAM AYERS is also a good guy, a loving father, hard to find in a chaotic world. As many have noted, Ayers and his wife Bernardine Dohrn graciously raised Kathy Boudin’s son Chesa to responsible and successful adulthood, and in general he seems like a very standup guy in terms of his private personal qualities. Not that Obama can afford to engage in that argument; his winning strategy is more along the lines of “who teh f*** cares about this bulls*** the GOP is pulling to distract you from the fact that their unbelievable incompetence is about to take away your health care, get you fired, crash your pension fund and basically destroy your life?”
October 5th, 2008 at 2:19 pm
Let’s see. A loss of 159,000 jobs in the September report on the employment situation. The report on the October employment situation will be released on Friday, November 1. The economists at the Bureau of Labor Statistics seem to be immune to political pressure. The October report is highly likely to be worse than the September reort. Gonna be hard to “turn the page” on that.
October 5th, 2008 at 2:38 pm
Man, these people are stupid. Do they really not get that there’s more to this crisis than a dip in the market and some bad headlines? The bailout isn’t getting people out of consumer debt, isn’t stopping foreclosures, isn’t making health insurance or college more affordable, isn’t making jobs more plentiful or secure, isn’t making gas cheaper. Not to ape an Obama talking point, but if McCain thinks the bailout will make people forget that they are struggling, he is really really really out of touch.
October 5th, 2008 at 2:43 pm
For the election to become, as McCain hopes, a referendum on Obama, people would have to feel safe enough with McCain to regard him as a sort of default choice. That’s pretty unlikely given the fundamentals and McCain’s incoherence in terms both of policy and campaign tactics.
October 5th, 2008 at 2:44 pm
The economy has been on our minds since March. For a while, our minds were on gas prices, when the gas tax gimmick didn’t work for McCain, he moved onto drilling and that’s when things between him and Obama got tight. Obama seemed to give in and now the economy is back in fashion. McCain just happens to be on the wrong side of the issue. He can talk about cutting taxes all he wants but we’ve seen what tax cuts have accomplished, virtually nothing for the middle class. The bailout has passed but we’re still anxious to hear from the presidential candidates what they plan to do to turn the economy around. We’re not sure of the specifics but taking a look at each campaign’s economic advisers, we see that Obama has surrounded himself with people from Clinton’s economic team and we have good memories of those days and on McCain’s side, we see Phil Gramm, King of Deregulation, and Carly Fiorina, Queen of Golden Parachutes. It would behoove both candidates to talk more about the economy and what their plans are to create more jobs rather than moving on to the next subject.
October 5th, 2008 at 2:50 pm
George Will made a fair point this morning on ABC that people will soon be receiving their 401k statements in the mail. I imagine a voter seeing that, then flipping on the tv to see a McCain attack ad about Bill Ayers and finding themselves pretty disgusted w/ McCain.
October 5th, 2008 at 2:53 pm
I wonder if Obama is still black? I’ll have to ask the McCain campaign to find out.
October 5th, 2008 at 2:54 pm
The nature of the financial crisis certain did provoke a white knuckle tone to press coverage of the economy that’s unusual.
Bill Shakespeare you ain’t.
October 5th, 2008 at 2:58 pm
Once again…
We’ve been in a recession since March or April of this year. Also, its a natural part of the business cycle and not something that you “avoid”.
How hard is it to recognize that after six straight months of nonsense about “avoiding a recession” that we crossed that rubicon along time ago?
As always, when economists offer their hindsight measurements on business cycles they will look back a year from now and note that we were in a down trough way in advance of when we finally realized it, and out of that trough way in advance of actually registering that fact.
October 5th, 2008 at 3:12 pm
The economic crisis is going to be the biggest story in the lifetimes, up to now, for a majority of Americans. While ultimately it will be seen as entwined with other crisis, energy supplies, climate change and extraordinarily bad foreign policy, as well as economic policy but the thing that people are going to see and experience is the economy.
The crisis is not going to spare either political party. For now Obama seems to be getting the better of it but the silly bailout, sponsored and then embraced and lauded by the Democrats, is going to be long remembered. Our politics is as bankrupt as our banks.
October 5th, 2008 at 3:31 pm
Even if the economic crisis fades in MSM coverage (which I doubt), it’s going to hit the top of the charts among retirees when they get monthly statements on their investment portfolios and suddenly find themselves 15-20 percent poorer, and among people whose ARMs’ and other debts’ interest rates jump because they’re tied to the skyrocketing London Interbank Offered Rate (LIBOR). This bad economic news is going to hit home, literally, in the week or two before Election Day.
Watch the polls for late swings away from McCain and down-ticket Republicans, especially among older voters.
October 5th, 2008 at 3:35 pm
The financial crisis started months or years ago and went unnoticed until three weeks ago by John McCain.
His consciousness of this event reminds me of the movie “Apollo 13″. Right about now, John is lamenting how he won’t get to walk on the moon. Or maybe he is the TV executive who decided that it was time to return to commercial programming. Either way, he just wants to take a nap and worry about it in January.
October 5th, 2008 at 3:45 pm
Re: The economic crisis is going to be the biggest story in the lifetimes
I suspect that 9-11, and its aftermath (Iraq and all that), will remain THE story of my lifetime, and of many people’s lifetimes, absent some disaster on the scale of a nuclear attack or a large meteor crashing to earth. The economy will dominate the news for quite a while, assuming again no great disasters, but death and destruction, and especially sudden shocks involving death and destruction, will always trump economics, if only because the latter is a bit boring and reminds most people of their ninth grade algebra class.
Re: among people whose ARMs’ and other debts’ interest rates jump because they’re tied to the skyrocketing London Interbank Offered Rate (LIBOR).
That’s not how ARMs and the like work. They’re tied to the Fed funds rate– which is low and may well go lower. One factor keeping even more mortgages from tipping into default has been the Fed rate cuts– and this is probably why the Fed has not even considered raising rates despite the risk of inflation.
October 5th, 2008 at 4:19 pm
Someone above noted that Oct unemployment numbers come out Nov. 1. AFAIK this is wrong; I believe they come out Nov. 8 (after the election). However, 3rd quarter GDP numbers come out Oct. 30; it’s well within the realm of possibility that they show a contraction, giving “recession is here” headlines for the last week of the campaign.
October 5th, 2008 at 4:26 pm
JonF said:
No, mortgage rates are tied to LIBOR 6-month and 12-month lending rates. One of the recent ‘innovations’ banks have come up with is to lend long-term and borrow short-term, i.e. loan out 35-year home mortgages and finance it with rolling 6-month corporate paper. When the credit market seizes up, you can’t borrow short, and you get in big trouble.
LIBOR is only loosely tied to the federal reserve rate, and the separation between them has been at record levels for awhile now. Google “TED spread” to find a chart.
See here for an in-depth explanation of ARMs:
Subprime ARM Initial Rates
and
Libor or Slimbor
October 5th, 2008 at 5:39 pm
Re: No, mortgage rates are tied to LIBOR 6-month and 12-month lending rates.
This flat-out contradicts everything I’ve seen on this, inclduing analyses by learned folks (e.g., Brad DeLong) claiming that the lowering of the Fed rate has prevented even more mortgages from going into default due to skyrocketing payments. Maybe we’re talking past each other here, with the rates of new mortgages based on LIBOR while rate resets on ARMs are based on the Fed rate?
October 5th, 2008 at 6:47 pm
Mortgages are all based on LIBOR. It’s in the fine print (seriously).
Normally one might expect that if the Federal Reserve loans banks money at a lower rate (but normally only on high quality collateral — treasuries) it should lower the rates at which banks will lend money to each other: LIBOR.
However, the Federal Reserve has largely lost control of the situation. Even if they cut again it wouldn’t make much of a difference. Banks are simply hoarding cash in an effort to survive. Also, the Fed only has about a trillion in reserves total and they’ve loaned out far more of that then they normally do (something like 50-70 % versus 10 % normal).
Here’s the TED Spread. This is the difference between LIBOR and the T-bill rate. Obviously it’s going crazy. A lot of banks are technically insolvent but playing account games to stay alive. No one wants to be holding paper from someone like Lehman Bros when they go bankrupt and suddenly your principle is gone. Hence the high rates.
October 5th, 2008 at 7:40 pm
Biggest stories of my life, as a three-act play:
First act: the Cold War, and its seemingly miraculous end in 1989.
Second act: the rise of the Web from the province of a handful of geeks to something practically essential to our daily lives.
Third act: our success or failure at addressing global climate change.
Anyhow, ‘the economy’: there’s no way to ‘turn the page’ on it as an issue in bad or uncertain times. Maybe it’s just the stuff of newspaper headlines to the guy with seven houses, thirteen cars, and an airplane, but to most Americans, it defines the contours of their daily lives – what they can afford, and what they can’t; whether they can expect a raise this year, or even to hold on to their jobs. Whether they can afford to fill up their car or not. Whether they need to work a second job or not.
There’s no way McCain can understand this, nor can our pundit class, the Broders and Wills and so forth, who can make more money from a couple of after-dinner speeches than most families earn in a year.
It’s why I get angry at the Dems when they don’t use the bailout as a means of passing legislation that would quickly and directly help average Americans, as well as bailing out Wall Street.
Have our Democratic Congresscritters lost sight of what most Americans’ lives are like? I can only conclude that they have, because they didn’t use the flood of constituent mail and phone calls saying, “hey, if you’re going to bail THEM out, what about US?” as a cudgel to do things like extend unemployment benefits and spend on infrastructure projects that would add good jobs. Instead, they viewed that flood of anger as an obstacle.
We need a genuine party of the left in this country. The Dems ain’t it. I know Kos wants to fight for “more, better Dems” but how long will it take to have enough “better Dems” to change the tone of our policy debates? Decades, I suspect.
October 5th, 2008 at 8:29 pm
Re: This is the difference between LIBOR and the T-bill rate. Obviously it’s going crazy.
I administer corporate loans at work. Many of them are based on Libor (though some are based on Fed rates; many corporations have both). We just went through end-of-quarter repricings. Yep, the Libor loans saw an uptick in rates, but it was hardly the calamity everyone’s talking about.
Re: A lot of banks are technically insolvent but playing account games to stay alive.
The problem here is a lack of transparency about assets. Very few mortgage-backed securities are truly worthless, though almost none of them have their original worth either. Something I’d like to see the government demand is a full-scale analysis of these securities to determine their worth. A herculean task, yes, but hardly impossible with today’s data processing capabilities. By getting all the skeletons out of their closets we could put this mess behind us a lot faster.
Re: There’s no way McCain can understand this, nor can our pundit class
A truism to keep in mind: the more money you make the more you find to spend it on– and the more things become necessities. I do expect that this effect maxes out somewhere up the income ladder, probably before you get to McCain’s rung, but quite possibly not at the level where the Obamas reside.
Also, major recessions devestate the assets of the rich, and thereby decrease income inequality. The equality levels created by the Great Depression stayed with us for more than a generation. Rich people do notice when their stock funds are melting away like snow in April, one reason why the GOP no longer has as much support from the champagne and cavier set that it used to. The recession at the beginning of the decade sent them to the cleaners and now they’re going to get a quite thorough fleecing. Maybe in a couple of years even Cindy McCain will be cursing the name of George Bush.
Re: We need a genuine party of the left in this country.
You may be right in the abstract, but to have a viable party of the Left, we also need enough citizens who would support such a party. Americans in the past have supported a degree of progressivism and I believe they will do so again; but for whatever reasons Americans just don’t do hard left.
October 5th, 2008 at 9:18 pm
Sometimes I wonder if some of McCain’s advisors are actually double agents.
Whichever idiot made the rurn the page on the economy comment should never work in politics again. That was the GHW Bush not knowing the price of milk moment. Obama already has it in an ad, he can live off that quote right up to election day.
I think it is a symptom of them thinking it is all about news cycles as opposed to reality.
October 6th, 2008 at 1:32 am
Perhaps John McCain can talk to the economy and tell it to read “Wealth of Nations,” ypu know, like he did to the GOP candidate who actually did predict the crisis and who pointed out how rotten our finncial system was.
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