This Week in American Decline

Everyone was picking through symptoms of the financial crisis this week. The fire sale of bad boy investment bank Bear Stearns got five times more expensive than it was on Friday. The Financial Times reported that the $2 share deal came unglued not just because of Bear Stearns shareholder outrage but because JP Morgan, the buyer, didn't sew up the deal legally. This is not very comforting, given that they are the rescuer here.

Other financial themes persist:

• The economic confidence of middle-class and working folks has been crushed. Floyd Norris has the week's best view of the underlying issues. In terms of overall confidence levels, the last time we were this low was the oil crisis of 1973! He points out it's not just falling housing prices and market volatility that is the problem, but rather the

  evidence that America is no longer a leader, or perhaps even competent, in one area in which we believed it excelled.
  
  That area is finance. Only months ago, American financial institutions were pre-eminent in the world economy. We were the country that invented all the new financial products and that made lots of money from them. It was our investment banks that were called upon to advise companies and governments in other countries, and then to arrange the financing they needed.
  
  Now that reputation lies in tatters. Our big banks have been forced to turn to places like China and Abu Dhabi for capital as losses have mounted. But no similar angel turned up for Bear Stearns, and the Federal Reserve Board had to step in to avert disaster.
  
  The Fed, which only months ago seemed omniscient, now seems to be making it up as it goes along.

• Blind-date investing. Big asset pools remain mystery dinners. What the hell is inside the Bear Stearns asset pool, for example, which in theory among the most scrutinized? Who knows whether it's "really" all worth $2 a share, $10? 5 cents a share? Senators don't know either.
  
• crumbling middle-class dreams. The NYT again discovered the equity crisis and the truly amazing amount of credit on which the trappings of prosperity have come to depend.
  
• Obama sought to occupy working-folks ground with his speech on the financial crisis. Paul Krugman pointed out his proposals are all weaker than Hillary's.
• Help the Top First (and then Stop). The economist Dean Baker pointed out that the Fed guaranteeing nearly all of Bear Stearns's assets bails out the big institutions that hold instruments backed by BS assets. In the same vein, Republican candidate McCain made it clear that he will follow anti-government dogma on the genius of markets and not intervene. Treasury Secretary Paulson also rejected the New Deal quid pro quo: you get government money and support, you get government ground-rules.
• Hail Mary in High-Tech. Motorola hasn't found a product replacement for its smash hit Razr phone. Sales decline. Stock prices fall. Gorilla investor Carl Ichan gets upset. Motorola appeases Ichan by deciding to "split itself into two separate publicly traded companies, spinning off its unprofitable mobile phone unit to investors." Which is stupider - selling your main business, cell phones, instead of fixing it, or thinking that if you brand it a loser investors will buy it? I don't know. I do know the "real economy" folks don't know any more than last year's hedge fund geniuses. I also know that Carl Ichan should retire.
  

Politically, the crisis has continued and not transformed the two-party politics we've seen all decade. Republicans favor the upper brackets, really the top 0.1% and top 1% over even the top 10%. McCain's speech was proof that the best Republican minds see no mounting opposition to this.

Everyone else has to rely on the Democrats. There's an uptick in popular fear and hence popular suspicion of the Republican monopoly-market policies that got us here. But no one calls it that, and the Dems still have 1) too-little-too-late plans and 2) no overall philosophy of "social markets" or something similar that would be truly counter-cyclical and get the economy moving again. So for the moment, both the economy and the political debate are going nowhere.

Meanwhile, "Old Europe" and its apparently backwards social infrastructures (aka welfare states) is doing relatively well, even with the strongest currency in a couple of generations.