Bafflement; Trying to Analyze the Meltdown

Article excerpt

Byline: Tony Blankley, SPECIAL TO THE WASHINGTON TIMES

There was a joke going around conservative circles during the mid-1960s that we were warned that if we voted for Barry Goldwater, America would get deeper into the Vietnam War. The punch line was that we did vote for Mr. Goldwater and America did get deeper into Vietnam. (Of course, President Johnson had campaigned on that warning, and then it was he who got us deeper in.)

I couldn't help thinking of that old joke on Monday. It had only been on Friday that members of Congress had been warned that if they voted against the $700 billion dollar bailout, the world's stock exchanges would crash. Well, about 170 congressmen did vote no, and sure enough on Monday from Moscow to London to Paris to Frankfurt to Asia to New York - the markets of the world did crash.

Moreover, by Monday, experts were divided on why the markets were going down and what should be done about it. I was in a hotel room in Santa Fe, N.M., waiting to give a luncheon speech. All morning I couldn't take my eyes off CNBC's coverage of the worldwide market crashes. What caught my attention (along with the vertiginous market drops taking place), were the opinions of many of the world's leading financial experts and practitioners that ranged between conflicting certainties and admitted bafflement at both causes and solutions.

There were several experts who said that the market crashes indicated that the $700 billion bailout was judged insufficient. Many others argued that the market crashes had nothing to do with the bailout - but rather were reactions to the increasing evidence of economic contraction around the world. Particular attention was paid by a few experts to the news that China would not be importing any gasoline next month - thus evidence that China's (and therefore Asia's) economies would also be contracting.

Others pointed to Europe's banks, which only last week had been loudly predicted by elite Europeans to be safe from financial contagion, suffering contagion from New York's financial disease.

Experts were equally conflicted over cures. There was a large group of confident-sounding experts asserting that what was needed was an immediate worldwide coordinated interest-rate drop of 100 basis points by the central banks of the world. But for each such assertion there was another confident-sounding expert firmly pointing out that the problem wasn't the price or quantity of money at banks, but rather that the banks were sitting on their cash rather than lending it because they didn't trust any borrowers - including fellow banks.

And so the morning went: a mix of false confidence, bafflement and fear in the faces of grizzled stock-market pit operators, pension-fund managers, Ivy League college finance professors, hedge-fund operatives, elegant European financiers, worldly Muslim bankers, hard-faced New York asset managers, richly dressed private equity-fund owners, shrewd Asian bankers, and an occasional foolish-looking politician shaking his fist futilely at the disgraced former Lehman Brothers CEO. …