This is the real “Code Red.” As one banker remarked to me: “We finally found the WMD.” They were buried in our own backyard – subprime mortgages and all the derivatives attached to them.
Yet, it is obvious that President Bush can’t mobilize the tools to defuse them – a massive stimulus program to improve infrastructure and create jobs, a broad-based homeowner initiative to limit foreclosures and stabilize housing prices, and therefore mortgage assets, more capital for bank balance sheets and, most importantly, a huge injection of optimism and confidence that we can and will pull out of this with a new economic team at the helm.
The last point is something only a new President Obama can inject. What ails us right now is as much a loss of confidence – in our financial system and our leadership – as anything else. I have no illusions that Obama’s arrival on the scene will be a magic wand, but it would help.
Right now there is something deeply dysfunctional, bordering on scandalously irresponsible, in the fractious way our political elite are behaving – with business as usual in the most unusual economic moment of our lifetimes. They don’t seem to understand: Our financial system is imperiled.