Tea, Anyone?

The British breakthrough, and how it managed to smash the U.S. bailout logjam and get it moving, is just one more of those crazy, topsy-turvy turns on the bumpy road to financial sanity -and another indication that America’s global preeminence is facing some challenges.

Finally, a coherent plan seems to be emerging to address some, and some is the operative word, of the excesses, failings and weaknesses that have arisen in the financial markets. The origin is revealing. U.S. Treasury secretary Henry M. Paulson Jr.’s plan has had more iterations and setbacks than a bad Hollywood script. They were the product of a Republican administration which had a reputation for being pro-business. The British plan, on the other hand, was not only a model of speed and simplicity, conceived and adopted in a matter of days, but it came from a Labor government. Generally, business does not find itself applauding that leaning. Credit belongs to Prime Minister Gordon Brown, who actually seems to know what he is doing and what is necessary to restore confidence in the functioning of the markets.

Now, the U.S. has decided to follow the British lead and announced tonight a massive injection of capital into nine banking institutions. These measures notwithstanding, more needs to be done to understand how the world was hurled to the shaky edge of the financial abyss, who is responsible and what the costs are for the solutions that are being proposed. No reasonable person can be happy or satisfied that the excesses and senselessness of Wall Street and its counterparts elsewhere must be underwritten by public funds that soar into the trillions. Evidence suggests that public outrage is soaring just as high.

The British breakthrough, and how it managed to smash the U.S. bailout logjam, is just one more of those crazy, topsy-turvy turns on the bumpy road to financial sanity -and another indication that America’s global preeminence is facing some challenges. Perhaps Mr. Paulson should try a cup of tea more often.

Paul Krugman made some interesting observations on these points in The New York Times on the day the Nobel committee announced his prize for economics. It’s good to see someone win who has demonstrated a keen grasp of the human dimension to economics. A giant of that field, the late John Kenneth Galbraith, never received the Swedish honor, though many of his followers, including this observer, felt it was an unfortunate omission. Just before his death, Mr. Galbraith predicted the coming of a major disruption in the banking and credit sectors. He was a student of the market crash of 1929 and never really bought into the idea that it couldn’t happen again. He was correct.

Mr. Krugman is in good company taking up the Galbraith banner of making economics accessible to the people most affected. We wish him well and salute him for his distinguished achievement.

Incidentally, Mr. Krugman publicly became one of America’s newest millionaires today.  The prize is accompanied by a cash award of $1.5 million.  I believe the technical term economists use to describe such events is “awesome”.