Pin the Tail on the Donkey

I watched with interest this morning after Sec. Paulson’s statement regarding working with Congress to take action on the financial crisis in the next week, to see what the first statements coming out of the campaigns would be.

I saw McCain’s reaction first; a reaction which was non-specific as to whether Paulson’s action was the right action in response to what is happening to the markets.  McCain’s response was to attempt to tie the crisis to Obama, without specifics as to how he reached that conclusion.

Obama’s reaction was to the point.  It indicated that the campaign recognized that the response Paulson proposed to Congress was the only response that can be made which will address the issues behind the crisis.

The American people should take note that at a time when, without overstating the problem, our economy hangs on the edge of immediate and unrecoverable collapse, the McCain campaign attempted to continue to play politics, without even addressing whether they believed Paulson’s action was the correct action, and, if not, just what action should be taken in their view.

What is happening, to my understanding, is that the economy, which runs on the engine of credit, is bound and is coming to a standstill because of the bad mortgage loans that are out there.  In order to get those bad mortgages out of the system and allow credit to once again flow, the federal government must create an entity to purchase those mortgages from the various holders, and will then sell them at auction at a very reduced price.  The best analogy I can think of as a layman is that it is like taking a fleet enema, or perhaps, like a dam which has formed of logs and mud, and that must be removed before the flow can be restored.

As I understand it, it is the only action which will be effective, and Congress will have no choice to act in a bipartisan manner to quickly remove the bad debt from the system so that Wall Street can get back to generating profit and jobs.  It is no time for politics as usual.  It is very inconvenient at this time of crisis to change Presidential administrations.  Paulson should be kept on by the new administration until this patch is implemented to the system.

If you ever want your money market or 401k to regain it’s value from the 10% or so that it has lost, or for the economy to again create jobs and money, then this is what has to be done, according to every expert in the field that I can find.  It is not a time for withdrawing money from the system (at a substantial loss).  It is a time to just be patient.  It may be 10 years before we see a full “recovery,” but even before the full recovery, the economy will begin to operate in a healthy way again.

That’s my analysis in a nutshell.