Don’t Panic

If there’s one lesson we should all bear in mind as fear stalks Wall Street and the presidential race keeps getting tighter as it races towards its conclusion, it is this: Don’t Panic.

Now, the current crisis is not an illusion; at its core, it’s about markets that valued assets one way and now value them as being worth considerably less, and that has all sorts of ripple effects when it threatens to close down major financial institutions or force the fire-sale liquidation of portfolios of billions or trillions of dollars worth of assets for which there may not currently be a liquid market. People have lost real money and real jobs, and serious people in business and government alike do need to think long and hard about how to contain the damage and reassess and rationalize government’s regulatory roles going forward.

But financial markets, credit markets and even consumer spending markets all depend on trust and confidence, and can all be brought to a grinding and ultimately self-defeating halt by panic.

Now, John McCain has never been accused of being a financial whiz, but the one thing we can trust McCain not to do is panic in a crisis, or encourage anyone else to panic. McCain’s survived three plane crashes, multiple bouts with cancer, the loss of a presidential primary campaign, five years in captivity, months on end in solitary confinement, countless hours of torture, being at the epicenter of a shipboard fire that killed 134 people, being named in a front-page scandal that killed multiple major political careers, being beaten by an angry mob, having one of his top legislative priorities torpedoed by his own party’s base, standing stubbornly for a war nearly everybody had declared lost, and just a year ago found his presidential campaign broke, rudderless and declared dead by nearly everybody. Yet time after time after time, McCain picked himself up, dusted himself off, gritted his teeth, set his jaw, and refused to give up, whether that meant lying broken in a filthy cell as a young man or trudging on week after week to sparsely-attended rallies in the New Hampshire snow as an old one.

Why that matters to today’s news, of course, is that even as the headlines have been dominated by one ripple of the credit crisis after another, McCain has acknowledged the damage and the need for reform, but he has stubbornly refused to panic, and has urged the voters even in hard-hit communities not to panic either. Over and over he has insisted that underneath all the credit craziness, the fundamental foundation of the American economy – the labor force, the businesses, the old-fashioned Yankee ingenuity, the entrepeneurial spirit – is still strong and still the envy of the world. As McCain’s economic guru, Douglas Holtz-Eakin, put it recently, “You shouldn’t run for president by running from everything in sight and trying to scare people.” (H/T) McCain himself has promised regulatory-agency reform that “consolidate[s]” the alphabet soup of regulators (e.g., Treasury, Fed, SEC, CFTC, OCC, FINRA, OFHEO, PCAOB, to say nothing of 50 state banking agencies, 50 state securities commissions, 50 state insurance commissions), but also warned against “a risk of overregulation and overreacting…Congress has a tendency to do that.” His latest TV ad stresses this bedrock optimism, the can-do sense that we’ve been through worse and can beat this too:

But every time McCain has made this point, Obama and his campaign have flown into a tizzy. Obama seems to think it’s a great selling point to attack McCain for trying to tamp down panic over the fundamental foundations of the economy. This is perhaps unsurprising; Obama’s never had to stand his ground under fire for anything, so he doesn’t understand why McCain is doing what he’s doing or what value there could be in reassuring the public to hang in there. The signature feature of Obama’s career, after all, has been a restless desire to move on to the next thing; even his survival of the long primary race against Hillary Clinton was all about simply running out the clock before his act wore too thin. But panic and ‘malaise’ is the last thing we need right now:

The palpable panic of Obama and the Democrats can best be seen in their aimless and economically illiterate lashing out to try to capitalize on the credit crisis after weeks of losing polling ground. Joe Biden thinks he can convince people to blame the Bush tax cuts for the credit crisis (!), or worse yet, he believes it himself. Obama himself can apparently barely even spell AIG and is voting ‘present’ on the bailout, yet he’s still pushing to jack up taxes on all forms of investment, even months after admitting that he favored a capital gains hike even if it didn’t bring the government any more tax revenue. Harry Reid gives an unhinghed speech calling the 1999 Gramm-Leach-Bliley Act “financial weapons of mass destruction,” ignoring the fact that Reid and Joe Biden voted for the Act in its final form, to say nothing of the fact that J.P. Morgan’s purchase of Bear Stearns, Barclays’ purchase of Lehman Brothers, and Bank of America’s purchase of Merrill Lynch would all have been impossible without Gramm-Leach-Bliley’s elimination of the archaic and artificial Depression-era barriers between commercial and investment banking. Then, Reid turns around and admits that “No one knows what to do.” At this point, the whole lot of them look like Kathleen Blanco, the Democratic Governor of Louisiana who simply froze up in the crisis of Hurricane Katrina.

By contrast, the McCain camp has been steady – even as McCain has warned against the “moral hazard” created by bailouts, his running mate has acknowledged the real-world reasons why the Fed may have felt it necessary to throw a credit lifeline to AIG. McCain isn’t pushing a radical expansion of government or a dire view of the state of the economy, just a promise to reform and modernize the way government works within its proper scope. He’s being the one adult in the room.

Maybe this realism about the situation and steadiness in its face is one reason why McCain is now slightly more trusted on the economy than Obama, as a decisive plurality of voters share McCain’s concern that the federal government will overreact.

McCain and Obama both want us to have hope for the economy. But somehow it seems that only McCain understands the lesson he learned in that long-ago POW camp – that you can’t have hope unless you have faith.

37 thoughts on “Don’t Panic”

  1. McCain was a POW? Wow, who knew?
    Essentially, if you are not at DEF-ECON 1, then you’re not paying attention.
    As they say no athiests in foxholes, there are no deregulators in bank failures, and McCain is not talking deregulation right now…

  2. I read this post with a smile on my face because it’s really well done. But what you are doing is characterizing Obama’s response to this as merely being for political gain while McCain has no such thoughts and is merely being the “responsible adult in the room.”
    The problem is that McCain’s response is -also- about political gain, or his case, minimizing any political loss he might face as result. Clearly, the Bush administration is going to look bad – rightly or wrongly – for this crisis, and McCain has a vested interest in not seeing it morph into something much worse. So all this “stay calm” and defending the bail-out is not just good advice – it’s also damage control. Had this crisis occurred during a democratic administration, you would be hearing Obama saying “stay calm” and McCain ripping the democrats. It’s all about the election.

  3. I think Obama would actually help himself more if he’d avoid embracing Fear Itself. You can make plenty of political hay at the expense of the Bush administration and the Republicans in Congress while still reassuring people that the sky’s not falling.
    McCain hasn’t really been too successful at communicating a clear, consistent message in response to the crisis (neither of them have, which is understandable given how fast things are moving and the fact that neither is really an economic professional), but I do think he’s struck a better tone.

  4. Jerry,
    I agree – both candidates are understandably scrambling here given the pace of events. As for Obama, I think placing some initial blame on the Bush administration is fine strategically in terms of his campaign, but you are right, he’s going to have to take a more constructive tone as the events unfold and demonstrate that he has some ability to fix the problem. In the same vein, “stay calm” isn’t a message that can last too long either, particularly if events turn worse.
    If I were Obama, I would move away from this “attack the rich/bash Bush” message to one that questions the ability of the Republicans to meaningfully regulate the financial system. In essence, how can you trust the Republicans to regulate the financial system when they favor deregulation?

  5. It’s a campaign; obviously they are both jockeying for position.
    I can’t really comment on the merits of the regulatory issues or finger-pointing, which gets too close to my clients.

  6. As I recall, it was Kevin Bacon in Animal House who kept telling everyone to remain calm, don’t panic. Then he got run over.
    It’s great that McCain won’t panic. You don’t want someone to look like a deer in the headlights (you know, like George W Bush on September 11?). But after you don’t panic, you better know what to do. And let’s face it, all the personal bravery in the world doesn’t change the fact that McCain appears to have no grasp of modern financial systems (OK in the Keating 5, he did show a modern grasp of greed, but greed is a old as stew–read the Princess Bride for the reference).
    Does that mean Obama is better suited for this? Well, in a way yes. I grant you, they both introduced bills for reform that went nowhere. When you are a freshman senator you get ignored; you keep touting McCain as the experienced wonder, but his bill got smashed too, which says not a lot either about his skills to get things done or his relationships to compromise.
    No, don’t panic, but this is the gravest situation our nation has faced economically since 1933. The ability to weather the storm is compromised by the non-energy policy in place (and off shore drilling is a loser economically, but it makes for sound bites), and an insanely expensive war across the planet. But simply claiming he will clean Wall Street’s house shows not leadership, but a lack of understanding that this is the cost of what Washington has allowed to go unchecked for too long.

  7. This is the spin job of all spin jobs. McCain is tied at the hip to people like Phil Graham who basically ushered in this era on Wall Street, etc. To think that continuing to allow the fox to guard the hen house for 4 more years is a good idea is simply insanity. Clinton won with the phrase “It’s the economy, stupid” as his campaign’s mantra. Stay on message and don’t back down from it. GOP ideas of fixing/regulating/managing/forwarding/improving the economy are laughable, so laugh at them in public. This is not an esoteric issue and while I don’t see it as the end of the world there are enough people scared s***less over this (and in many instances, rightfully so) that this is THE issue that will resonate with a up in the air electorate. I have no idea if Obama and his campaign will do that but when McCain wants to play mum and say that things are fine this is something to go after him on bigt time.

  8. “It’s a campaign; obviously they are both jockeying for position.”
    I’m not accusing you of not being aware of it, but as I read your characterization of McCain’s “stay calm” response as indicative of a steadfast, faithful survivor, can you really fault me for not mentioning his self-interest??

  9. Rather, make that “can you really fault me for mentioning his self-interest.” I can’t write today.

  10. I appreciate the sentiment, but the election is lost. McCain has about as much chance to be President as the Mets have of winning the penant – namely, none.
    The Palin boomlet is over – she has been effectively Clarence Thomas-ized by the media. She will be a darling to the right wing (of which I am one), but marginalized for everyone else. The media really cranked up (sorry) their anti-McCain effectiveness once McCain picked Palin and showed that he might have a chance. And there is simply no way that the McCain camp can beat an all-out effort by the media to bring Obama home.

  11. Jim,
    “GOP ideas of fixing/ regulating/managing/forwarding/improving the economy are laughable.”
    Despite my advice for Obama, don’t underestimate the ability of the democrats to try to regulate it and screw it up. Hopefully, this is an area where both parties will let the crisis die down a bit before either of them try something rash without all the information.

  12. MVH,
    Oh, I think the Dems are wildly capable of screwing things up by over-reacting to this situation and they certainly have to field some blame for being at least somewhat complicit in all this. The idea though that the “free-marketers” who dug this pit can fill it in is utterly absurd.

  13. By the way…it is not that the media is bringing it home for Obama…no media in the pocket would have spent that much time of Rev. Wright (what was it, seven days?) and relatively no time showing John Hagee videos or Jews for Jesus leaders.
    The media is largely the result of casual low information voters, and they go where the flow goes. And the flow is going away from McCain swiftly, and what was left of the Palin bounce was killed by not being able to handle herself in her one Gibson interview…That was a “big sucking sound” right after it that is starting to show in the polls…
    But there’s a long way to go, with debates very close to the election…and if Palin works a tie with Biden or better, there can be renewed interest…
    If the election were today, it would be a bloodbath (particularly with NC and Indiana in play), but there are plenty of things to come…
    Bush did the Dems a favor by not putting the resolution of taxpayer bailout of AIG to a Congressional vote…that could have been ugly…

  14. Bloodbath? The recent polls I’ve seen today show Illinois(!) within five points, and Washington, Oregon, Wisconsin, Minnesota, Pennsylvania, and Michigan all as statistical ties. I don’t see how that is the making of a bloodbath for Obama.

  15. I live in NJ and I’ve been polled 3 times. I always tell them I’m voting for Jug-Eared Jesus even though I wouldn’t on a bet. But the pollsters sound young and a little ethnic and I didn’t want them to think I was a racist. Or worse, uncool.

  16. The only poll in IL that shows it close is ARG, that I see, and that is a very questionable LV model. Even so, does this really defeat the “if the election were held today” thing? Seems to me, VA and OH, and by CNN FL, going Obama would be kinda a bloodbath, don’t ya think? Close doesn’t count in electoral college, only in horseshoes and hand grenades…

  17. If you think Oregon is going for McCain you’re smoking some of Oregon’s finest export. No chance that happens.

  18. Well, just to clarify, I’m not saying ILL will be red.
    Sure, if VA, OH, and FL vote for Obama, it will be a bloodbath, but right now, McCain is ahead in all three of those states. And, he’s ahead in IN and he’s way ahead in NC. I guess when I think “bloodbath”, I think of someone getting 300 plus electoral votes, and I don’t think any reasonable person can predict that is going to happen. At least not as of today.
    The latest sum total of electoral votes I saw was 274-243 McCain, with PA as a tie. And that was of today. So, I guess I just don’t see how in the world you can say “if the election were held today, it would be a bloodbath for Obama.”

  19. CNN/Time shows OH for Obama by 2, FL tied at 48 (unless you include 3rd parties, then he’s ahead)…right now, it all depends on how much you weigh the poll, and when it was conducted…but if you picked today, it would definitely be an E-college blowout…
    The big news this election cycle is Iowa turning from Red to Blue, and substantially so…with NM the same although less so…That’s a net +24 swing to Obama in E-college from Kerry/Bush… Add Colorado, where it is nailbiting but close, and the map gets very big for McCain…Granted, if WI or MI falls, which does not look to be the case right now (at McCain’s high water point thus far he’s still not leading those two states), it is a different race…
    Two Indiana polls released today show Obama ahead in IN, and if that is so on election day (A big if, I would have never dreamed IN being close), bye bye…

  20. The entire country is now aware that the economy is a mess and the best thing that you can say about John McCain is that he won’t panic.
    That’s all well and good, but can you find anything at all in his impressive career that suggests the man has a clue about what to do? Or, much more importantly since we’re dealing with economic issues beyond the understanding of any professional politician, is there anything in his history that suggests he will find the right people to learn from?

  21. This post is a pile of absurdities piled upon illogic, with a sprinkling of spin. Fine work, Crank, you continue to outdo yourself. I can only imagine what you’ll say come late October.
    If I get the gist of this post, it’s that McCain is the right man for these times because he was a POW who knows how to tough it out when he gets shot down (something he knows a lot about).
    Meanwhile, you say he won’t panic, but I need to ask: when a man who claims to be against regulation calls for the firing of the head of the main financial regulatory body because that man has ostensibly . . . uhhh, not regulated enough, doesn’t sound like a panic move?
    What does it mean when an anti-regulator says he’s gonna reform Wall St. and eliminate greed and personal interest that runs against the nation’s blah, blah, blah.
    If you choose to define “panic” only by someone running around screaming “we’re doomed,” then I suppose you can argue this point. But if you include irrational decision-making and an inability to remain consistent in the face of a crisis, then your guy McCain is looking a tad shaky.
    * * *
    Meanwhile, the country’s panicking just fine without Obama’s or McCain’s help: apparently the SEC (the regulatory body run by a former GOP legislator) has banned short-selling! Welcome to the USSA, folks. Or is it the PRUSA? Where we privatize profits but socialize risk (under a GOP administration).

  22. Mike, how dare you steal my thunder!!! I just wanted to get this straight:
    Economic devastation of the entire planet in the 30s brings government intervention: that’s bad
    Economic devastation of a large part of the economy in 2008 brings government intervention: that’s good.
    McCain says Obama has been a senator, and he did nothing, so he is bad.
    McCain has been a senator for how many decades now, but he good.
    Bill Clinton leaves this nation with a surplus, giving Bush the ability to wage a couple of wars because we basically had good credit, but that is bad.
    Republicans, namely Bush and his new buddy, now wait, now an enemy McCain spend what we don’t have, but that is now good.
    McCain is guilty of greed (officially considered so I might add) and cost the taxpayers billions to bail out the S&Ls in the 80s, but he is good.
    We now face the government nationalizing gazillions of debt, and that too is good. But republicans are still against what FDR did, much less anything else. So what will you do now Crank, Swift Boat the SEC? Oh, and now everyone in Texas is wondering where FEMA is. You republicans sure know how to run a government. Run as in: into the ground.

  23. 1. Calling McCain “an anti-regulator” is rather at odds with his entire career. I don’t expect from him the regulatory overkill of an Obama Administration, but he’s never been shy about supporting regulation. This is a symptom of “McSame Disease,” the inability to recognize clear and longstanding ways that McCain’s record differs from that of most conservatives.
    2. I agree with you about the short selling ban…Cox and the British (who just did the same thing) have lost their minds. And I have a lot of respect for Cox.
    I don’t like the bailouts; I am more understanding of things like the Bear and to some extent AIG bridge loans that are designed to provide a little time for a workout or sale than bailouts like the Fannie/Freddie bailout or this morning’s genius ideas that involve Uncle Sam actually buying bad investments. That said, given how my clients are involved in all this there’s really only so much I can write that gets into any detail on the topic, which is extremely frustrating.
    3. As he pointed out with the Eisenhower example this morning, McCain takes a decidedly military view of accountability, where you sack people who get bad results whether it’s their fault or not. It’s not the ideal management model but it beats sticking with people too long out of misguided loyalty, as Bush was known to do. It took Bush only a few days to fire Mike Brown after Katrina hit and most people felt that was waaaaaaay too long.

  24. The government bail out of AIG was a given. I would have bet everything on that happening. The fed had just taken over Fannie and Freddie, replete with bad/potentially bad mortgages. Who is the insurance bundler that has insurance on tons of those mortgages? AIG of course. There was NO WAY they could let AIG go down given the acquiring of F&F.

  25. There is a profound lack of understanding in the comments re short selling. Given the illiquidity of the CDS market, short selling, and the wipe out of equity interest in a variety of firms, have led to a run on the bank scenario. It is nice that any and all are opposed in principle, I join you. It is utter foolishness to wimper about the current ban. BSC, FNM, FRE, LEH, MER… then MS then GS. Yeah that’s a good thing. EMT has been consistently proven false, but it is a nice conversation piece. Cox is flat out awful, and Cramer’s plus tick rants are nonsense, but this is a positive move.
    Jim, exactly right on AIG. The fallout would have been massive, causing the global economy to sieze.
    Mike, funny you continue this absurd theme of bitching about cranks political views. You are a mirror image, but that’s ok because you are right? Give it a rest.

  26. (different Dave)
    “Cox is flat out awful”
    True, but he has been consistently awful over the past year – his first year or 2 he did fine, and could have done better. Barring naked short selling is a fine thing – I believe he did it for about a month in August, but only for a few firms. It’s the problem with having an ideologue in a position of having to act counter to his instincts.
    “Jim, exactly right on AIG. ”
    Well, not so much – the *cough* loan that AIG got would have been done regardless of Fannie/Freddie.
    I think I read recently that the combined rollup is of now around $800B, give or take $200B based on how bad Fannie/Freddie are. Some of which may come back, some of which will not.
    Add in the new TARP(troubled assets relief program, thanks CR) of another $500B-$800B, covering all sins. Anywhere from $1T-$1.5T of direct government intervention almost all of which was avoidable under proper regulation instead of the very little we had….. and the answer is don’t panic, McCain will save you?
    Personally, I believed the TARP or something like it was going to sit and fester until next year after the election. At least it is out now, and Paulson deserves credit for convincing people of it. Hopefully it doesn’t end up being $2T.

  27. Oh, I don’t doubt that AIG was going to get the bailout cash regardless but the Fannie/Freddy acquistion made it IMPOSSIBLE for that not to happen even though people were speculating as to whether AIG was going to get the $.

  28. Dave, at the end of the day the G may turn a profit on these deals, the issue is short term financing. Paulson has been dealt a nasty hand, he is playing it well in my opinion. Cox is a joke, his limited approach to naked shorting makes no sense. It was always illegal, the rules should have been enforced. To be clear, I am pro short selling, but the recent move is akin to a time out, an attempt to halt the downward spiral. That is not a bad thing, whether it works is another matter entirely.

  29. Calling McCain “an anti-regulator” is rather at odds with his entire career.
    Then why does he attempt to trumpet his anti-regulation creds? Could it be . . . dishonesty? We’ve seen a bit of that from the McCain-Palin ticket, no?

  30. McCain hasn’t been selling himself as a paragon of deregulation. He’s been selling himself as what he is on this issue, a moderate who believes in the virtue of deregulation in general but has often supported specific regulatory moves. It’s possible to strike a middle ground on these issues.

  31. When buildings fell in NYC, McCain immediately panicked and lashed out at Iraq (a nation which had NOTHING to do with the buildings falling).
    Nice try though, Crank.

Comments are closed.