Tuesday morning, March 18, was a truly fateful one in American politics and the economy. Here are afternoon-after observations to be applied as you wish.
- Illinois Sen. Barack Obama made an almost flawless – flawless both politically and substantively – nationally televised speech in Philadelphia in an attempt to shift national political debate back onto public policy issues from race and gender issues which had gained ascendancy in political debate over the previous 10 days.
- The Federal Reserve untook a three-quarter point easing – in the wake of weekend facilitation of a shotgun marriage between J.P. Morgan Chase and a failing Bear Stearns – in an attempt to further shore up a financial system overburdened with bad debt.
Only time will tell whether either action was more than a short-term holding measure or whether further bleeding is in store on both fronts.
Obama made the strongest possible case to be made to both separate himself from his former pastor's politically and socially inflamatory statements from the pulpit and to place debate about race, gender, ethnicity, religion, and class on a higher level than heretofore. His basic campaign theme has been that Americans of all persuasions needed to put past grievances behind them in favor of common, positive action to address clear and present national problems. He used the speech to reinforce it.
Short term, however, it is uncertain whether the speech will benefit him in the upcoming April 22 Pennsylvania primary. Pennsylvania is an old-politics state where old thinking and old grievances hold greater sway than in many other places. New York Sen. Hillary Clinton holds a strong lead over Obama among Democratic voters there (and the primary is for Democrats only, excluding Republicans and independents who have gone for Obama in state contests where they have been able to vote). White women, blue-collar, and ethnic voters in Pennsylvania are likely to stick with Clinton unless she makes a big mistake and stumbles in the period ahead.
Adding to the uncertainty of the nominating campaign is that fact that neither Florida nor Michigan, as of this afternoon, appears likely to mount a redo of January presidential primaries that were not sanctioned by the national Democratic Party. That means they could be the subject of angry rules committee and convention-floor disputes at the Denver national convention in August, creating turmoil and turning off a watching general electorate. Many chapters are yet to be written in the Florida and Michigan sagas.
Of greater immediate concern is what will happen now in the economy and financial systems.
The Fed, with easing today and earlier action on Bear Stearns, signaled that it was ready to undertake extraordinary steps to keep major financial institutions afloat and to unfreeze new investment. But there is a limit to what the Fed can do.
Private investors are unlikely to make huge new investments in mortage-backed securities or to launch new merger/acquisition activity. But there are bargains available now in various markets. Will big investment houses step forward to take advantage of them? (It has been pointed out, among other things, that Bear Stearns' New York headquarters building alone is probably worth the price Morgan Chase paid for all the firm's assets).
Government also needs to take action at the micro level to help ordinary citizens from losing their homes. The present Dodd-Frank bill in the Congress would do that by renewing Depression-era measures which stemmed foreclosures then. It is imperfect and would be difficult to apply in today's market, where lender-borrower relationships no longer are those between hometown banks and their mortgage-holding depositors.
What about wider effects? Here in Washington and Seattle we face the same challenges as other states and cities. Local institutions may prove to be shaky. State and local revenues, in the current downturn, are likely to fall more sharply in 2008 than previously foreseen. Big investment, expansion and hiring decisions will be postponed.
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