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Hopes for signs of economic life fell flat today, while people looked for somewhere to cast blame. The Fed's buyout of insurance giant AIG did little to calm investors. It caused huge losses on Wall Street.
The Dow dropped 450 points for a total of more than 800 points this week. The NASDAQ lost 109 points, and the S&P 500 went down 57 points.
It's like an Agatha Christie novel. Months ago we started with five major, independent players in investment banking. And then there were two.
Zions Bank economist Jeff Thredgold says those two could still see major changes. "You may find Morgan Stanley, and potentially Goldman, may have to affiliate with somebody else," he said.
Thredgold acknowledges the bail-out of AIG was the least bad option in a scary time, but he points out the fed, in exchange, has an 80 percent stake, and it successfully turned a profit with companies like Chrysler in the past.
With each troubled financial giant, the feds are getting a clearer picture of how deep the credit crisis runs. This week, investment firm Lehman Brothers filed for bankruptcy under billions of dollars in losses. That followed buyouts for Fannie Mae, Freddie Mac and Bear Stearns.
So, who's to blame? Finger pointing started early this week. Democrats blamed republicans, and republicans blamed Wall Street. If we could accurately and completely cast blame for this mess, it might make it all easier to stomach and easier to find a way out.
The presidential candidates have plenty of ammunition, but we'll have to wait to see if they have answers. Barack Obama blames the republicans and loose oversight on Wall Street. John McCain took aim at greed and outdated regulations. The Bush Administration blames the housing crisis.
Liz Tashjian, a University of Utah finance professor, said, "I don't think anyone has a clue what's happening right now. If anyone had anticipated that this was going to happen at this particular time, it wouldn't have happened."
Tashjian thinks it's too easy to blame in hindsight."Fault is a strong word. I do think that the deregulation that the republicans have encouraged certainly plays a role in this," she said.
She also cites a culture that idolizes the superstar, rock star and financial titans. "That's not a democrat problem, that's not a republican problem, that's an American pop-culture problem," she said.
Too many money managers felt huge incentives to take big risks. Tashjian says, "If they get lucky, the payoff is so huge, it's incredibly tempting. And we encourage that by making a big production about people who take huge risks and win."
Democrats controlled Congress the last two years; republicans ruled the White House the last eight.
Jeremy C. Pope, a BYU political science professor, said, "People might want to lay blame at the feet of the Bush administration, but the economy is a big sprawling enormous thing, so it's hard to lay blame at the feet of any governmental institution."
But presidential candidates and those running for other offices will use the crisis any way they can. "They'll take anything because they have this enormous incentive to win the campaign, win the election, and just swing those few votes that could make the difference in a very close election," Pope said.
McCain and Obama both promise tougher rules and regulations for investments and securities. In the recent fed loan and previous takeovers, both candidates say the fed should aim most to protect taxpayers not financiers.
E-mail: jboal@ksl.com
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