the highest virtue…

Posted on Friday 26 September 2008

Washington Post

John McCain’s sudden intervention in Washington’s deliberations over the Wall Street bailout could not have been more out of sync with what was actually happening. He lamented that "partisan divisions in Washington have prevented us from addressing our national challenges." But for days, bipartisanship has been the rule on both sides of this argument…

House Speaker Nancy Pelosi and Minority Leader John Boehner normally fight about everything. But on Wednesday they issued a joint statement noting that "working in a bipartisan manner, we have made progress"…

Frank did not need McCain to make him bipartisan, and he grumbled before yesterday’s White House gathering that it was a mere "photo op." After the meeting, Senate Banking Committee Chairman Chris Dodd (D-Conn.) called it "political theater" that may have stalled an agreement…

McCain had just finished a phone call with Obama on Wednesday in which they discussed a joint statement of principles and McCain broached the idea of suspending the campaign. Obama said he’d think about it, but McCain didn’t give him time. To Obama’s surprise, McCain appeared on television shortly after the conversation to announce his unilateral pause in campaigning and a call for postponing Friday’s debate. This is bipartisanship?

As for getting the nominees to yesterday’s White House meeting, Bush’s lieutenants had been in discussions with McCain’s people during the day Wednesday. Obama didn’t get his invitation from the president until around 7:30 p.m., just an hour and a half before Bush’s speech. This was an active intervention by Bush on behalf of McCain to box Obama into the photo op. Again, was this bipartisan?

… McCain’s boisterous intervention — and particularly his grandstanding on the debate — was less a presidential act than the tactical ploy of a man worried that his chances of becoming president might be slipping away.
New York Times

At the bipartisan White House meeting that Mr. McCain had called for a day earlier, he sat silently for more than 40 minutes, more observer than leader, and then offered only a vague sense of where he stood, said people in the meeting…

Still, as a matter of political appearances, the day’s events succeeded most of all in raising questions about precisely why Mr. McCain had called for postponing the first debate and returned to Washington to focus on the bailout plan, and what his own views were about what should be done. Those political appearances are a key consideration for Mr. McCain less than six weeks from Election Day and at a time when some polls suggest he is losing ground against Mr. Obama, especially on handling the economy.

The substance of the financial crisis aside, it was already proving a tough stretch for Mr. McCain. Gov. Sarah Palin of Alaska, his running mate, struggled through questions about her foreign policy credentials during an interview with CBS News. Mr. McCain was lampooned on television by David Letterman.

Mr. Obama might not have fared much better. He had come to Washington only reluctantly, opening himself to criticism by Republicans that he was putting his election bid ahead of the need to resolve the Wall Street crisis, and prompting concern among Democrats that his reaction to the events was simply too measured, considering the stakes.

Still, by nightfall, the day provided the younger and less experienced Mr. Obama an opportunity to, in effect, shift roles with Mr. McCain. For a moment, at least, it was Mr. Obama presenting himself as the old hand at consensus building, and as the real face of bipartisan politics.

“What I’ve found, and I think it was confirmed today, is that when you inject presidential politics into delicate negotiations, it’s not necessarily as helpful as it needs to be,” Mr. Obama told reporters Thursday evening. “Just because there is a lot of glare of the spotlight, there’s the potential for posturing or suspicions”…
Well, John McCain didn’t make things better. He may well have made them worse. But most of all, McCain’s dramatic arrival to stomp out Bipartisanship was misdirected. Apparently, Bipartisanship isn’t the problem. The problem is what the Mortgage Industry has done to our economy, at least a big part of the problem falls at their feet. Deregulation allowed the Industry to make shaky, uncollectible loans [and not to be ignored, many Americans borrowed money they could not pay back]. 

But, embedded in the Washington Post article are a few comments that frame the problem more broadly.
The simple truth is that Washington is petrified about this crisis and will pass something. There are dark fears floating through the city that foreign investors, particularly the Chinese, might begin to pull their billions out of our system.

Scarier than the bad mortgages are those unregulated credit default swaps that financier George Soros has been warning about. There are $45 trillion of those esoteric instruments sloshing around the global financial system. They were invented as a hedge against debt defaults, but even the financial smart guys don’t fully understand their impact or how to price their real value…
And what is a credit default swap?
A credit default swap (CDS) is a credit derivative contract between two counterparties, whereby the "buyer" or "fixed rate payer" pays periodic payments to the "seller" or "floating rate payer" in exchange for the right to a payoff if there is a default or "credit event" in respect of a third party or "reference entity".

If a credit event occurs, the typical contract either settles by delivery by the buyer to the seller of a (usually defaulted) debt obligation of the reference entity against a payment by the seller of the par value ("physical settlement") or the seller pays the buyer the difference between the par value and the market price of a specified debt obligation, typically determined in an auction ("cash settlement").

A credit default swap resembles an insurance policy, as it can be used by a debt holder to hedge, or insure against a default under the debt instrument. However, because there is no requirement to actually hold any asset or suffer a loss, a credit default swap can also be used for speculative purposes and it is not generally considered insurance for regulatory purposes.
If you read the linked article on credit default swaps, I guarantee you a headache. Here are a few that might be clearer – [1] [2] [3], but no more comforting. These non-insurance insurances have been widely traded around the globe to the tune of trillions [$45-$60 trillion]. It’s where the bad debt lives. So it’s not just our market that’s in trouble. Like a computer virus, this debt has been passed around speculatively and generously, but it’s apparently unsecured, even though it’s an instrument that was initially about security. I don’t hope to ever understand what I read here, but I think I get the point. Speculators have created a commodity market for debt and credit that has multiplied the problem exponentially. The credit default swap market is how the money disappeared. And it has disappeared for good.

So, John McCain’s grandstanding certainly hasn’t added anything as our government struggles to deal with this un-solvable problem. All it’s told us is that McCain is not the kind of leader we need right now. He’s fine for storming San Juan Hill, but he’s a bull in a China Shop when what’s needed is careful analysis and prudence in the face of a worst case scenario. Like his predecessor, George W. Bush, he’s not the guy for the job. He raced to Washington hell-bent to solve something that wasn’t the problem. As for the task before us, it’s daunting. Obama is criticized for not having a plan for a solution to this crisis. As it is playing out, that may be the highest virtue. This one is going to require our constant attention and best case negotiations for a very long time to come…
  1.  
    Smoooochie
    September 26, 2008 | 2:29 PM
     

    Other than the obvious “change” logo has anyone else noticed a theme w/ McCain that when you hear Obama say something a day to a week later you hear McCain repeating it? e.g. the focus on Main St. vs. Wall st. thing. and then the ‘i don’t want to infuse the bailout negotiations w/ Presidential politics”. What is that about? Am I the only one hearing McCain copycatting Obama? How can he be a maverick if all he does is repeat canned speeches and copy cat off of Obama?

Sorry, the comment form is closed at this time.