Economic Primer: Part II

At a time when large numbers of voters are apparently turning to the Dems because of the financial mess, it is ever the more imperative that voters educate themselves to what went wrong. It is a truism that an educated public is essential to democracy. Sadly, many of our mainstream media organs have turned into political propaganda arms of the parties. So it is terribly reassuring to run into Time's cover story this week. The story by Andy Serwer and Allan Sloan is a definite must read, containing the best explanations I have come across, particularly of the nearly incomprehensible credit default swaps.

As a matter of interest and a behind the scenes peek at what took place before the collapse of Lehman, you might want to take a gander at "How the Masters of the Universe ran amok and cost us the earth" at The Scotsman, a most interesting entry. Aw, I confess I really like the allusion, both to the cartoon and Bonfire of the Vanities.

So what is being done? In addition to the essential takeover of Fannie, Freddie, the infusion of capital into the system, President Bush yesterday announced a number of other steps. Read the text of his remarks here. My favorite section:

The Securities and Exchange Commission has issued new rules temporarily suspending the practice of short selling on the stocks of financial institutions. This is intended to prevent investors from intentionally driving down particular stocks for their own personal gain.
The SEC is also requiring certain investors to disclose their short selling and has launched rigorous enforcement actions to detect fraud and manipulation in the market. Anyone engaging in illegal financial transactions will be caught and persecuted.

Also of particular interest is the government's insuring money market accounts. In theory, money market accounts are not insured, although in some cases it is less clear cut. One money market fund already lowered the share redemption value from 1 dollar to 90 cents. Keep an eye on this one.

Now according to this article, the bailout could cost half a trillion dollars. I've seen estimates as high as a trillion. Which brings me to the reason voters need to know what is going on. The present Democrat proposals encompass increased taxes and increased government spending. Raising taxes in a time of economic difficulty would seem disastrous. As to increased spending, with the tab the taxpayers are going to pick up, it would seem more prudent to cut back government spending in all but the necessary. The government like any private individual is going to have to tighten its belt. Is it possible that Obama would react to present conditions by putting his greatest society package on hold? Possible. But what does he do about all those who voted for that agenda? ???