Flying Through Hysteria

by digby

I’m traveling today and got off a plane to see that the Dow had plunged 800 points. It looks like the hysteria continues apace. It sure would be useful if the richest, most powerful nation in the world had a president that had some credibility and an administration that knew what it was doing. But no such luck…

Maybe these guys will be listened to instead? From Floyd Norris, live blogging amid panic:

“The Market Has Flopped”: The Group of 30, a group of former regulators and government officials, and current and former corporate chieftains, is out with a long report on financial regulation today. It offers no conclusions, but is interesting in describing the weaknesses of all the systems used around the world. At a news conference today, the people in charge of writing the report, Paul Volcker, a former Fed chairman, and Roger Ferguson, a former Fed vice chairman who now runs TIAA-CREF, a money management firm, along with the chairman of the Group, Jacob Frenkel, a former governor of the Bank of Israel and now, unfortunately, vice chairman of A.I.G., had some interesting things to say. Mr. Frenkel noted that “things are highly contagious today,” and that the old distinction regulators used, between solvency and liquidity, was badly blurred. Mr. Ferguson observed that none of the financial regulatory systems had worked especially well, and that they would need to be restructured almost everywhere. But he added that even the best regulation would not stop financial institutions from making mistakes. The best lines, as usual, came from Mr. Volcker, the only living ex-Fed chairman who still has a good reputation for financial wisdom. “The Treasury has become the lender of last resort in the United States, which I think is appropriate,” he said. He noted that in Britain, with the most consolidated regulatory scheme, the Financial Services Authority still seemed to have trouble communicating with the Treasury and the Bank of England and that regulatory communication may have been better in the United States, despite its fragmented nature. Mr. Volcker’s skepticism of the new financial system has been well known for years, and was ignored by its biggest fan, Alan Greenspan, who succeeded Mr. Volcker at the Fed. Mr. Volcker recalled the “intense lobbying process” that had largely allowed markets to supplant banks as providers of funding with minimal regulation. “In the U.S., the market took over,” he said. “The market has flopped.” When things got tough, he added, “everybody is running back to Mother, the commercial banking system.”

update: It looks like we had a bit of a rally. I can’t say I’m surprised. Greed eventually supercedes panic and there must have been some serious bargains out there this afternoon.