Do We Need to Move the Baseline Already?

I thought it might be an eventful day when the news broke that a major bank (Wachovia) was being taken over (by Citi) while I was in the midst of posting our Baseline Scenario.  But I took it in stride, feeling confident that this was consistent with what we thought, broadly, was going to happen — remember that the point of the Baseline Scenario is to make clear, to you and to ourselves, the logic that lies behind what we think will unfold. 

In fact, the details of the Citi-Wachovia deal looked to be very much in line with our expectations (and, yes, we have a list of banks that we expect to run into trouble, but we’re not posting it here.)

The Baseline Scenario can also handle the Paulson Plan struggling in Congress, in two senses.  First, if it doesn’t pass, there are other measures that the Fed and Treasury can take to shore up markets in the short term.  None of these are attractive for the long haul, but we really need to get through November 4, so a new team can get in place (I know they don’t take office until January, and you can’t have more than one President, but there are workarounds.)

Second, even if it does pass, we’re quite skeptical that the Paulson Plan will fix the deeper underlying issues (see the long memo that is the First Edition of our Baseline Scenario).  So you’ve got to get cracking in any case on discussing, educating, and negotiating around a potential Plan B.

Also, market volatility and downward pressure on equity prices are very much in our Baseline.  The dollar, you will have noted, held up rather well today.  Where else are you going to put your money, particularly when there may be further nasty surprises lurking somewhere in the European banking system?

Still, I would mark the day overall as slightly below expectations.  I think it was the general tone and sense that order was lacking (and that expected votes in the House did not materialize).  Also, I wonder what will happen tomorrow, which is not a working day for Congress while the markets will be open.

Days until the election: 35

3 thoughts on “Do We Need to Move the Baseline Already?

  1. RE: Rating Agencies

    Specifically, how have the credit reporting agencies, Trans Union, Experian and Equifax failed the Lenders thru their high percentage of error per credit report and allowing the Lenders to use the tactic of running a new credit score on the borrower and re-rating the loan package based on the “current” credit score of the borrower IF in fact it has gone “down” since the loan was made? Does the CURRENT credit rating (score) of the borrower(s) on an existing loan truly affect the value of the asset as viewed as security IF the loan payments have ALL been on time? Shouldn’t this process be covered in the new legislation to prevent this fron being used as Standard Operating Procedure, especially to drive/filter loans INTO the Federal Rescue?

    Thanks, Janet

  2. Having just watched Mr Johnson on C-span. I was impressed enough to come here. I was disappointed that the real meat was most exposed in the last few seconds and would have been much better as the starting point.

    Just a few points:
    1)There is no Left-Center-Right in much more than rhetoric. There is only the ability of those not in position of leadership to hold accountable and transparent those who are. The title of the leadership (Commissar, CEO, Owner, or Senator) is irrelevant except for the controls or lack of them by all the stakeholders. Until this reality is dealt with, a clear path cannot be found.

    1a)By this thinking Socialized Society should be thought of like a socialized dog. It does not eat the furniture or family or leave surprises on the carpet.
    The Anti-socialists have driven the rules till our present society is very unsocialized.

    2)There are four levels of economics.
    a)Creating productivity such as machinery, factories, infrastructure, etc. that create goods or increase productivity, thus increase wealth as long as they are operational.
    b)Creating durable goods that once purchased will hold wealth.
    c)services that may be needed but last only the length of the service, and after have no or very limited value, thus slightly draining wealth.
    d)Financial service that actually costs to maintain, thus draining wealth long after the service is over.

    This may be economics 101, but the public conflation of all as equal, and certainly as equal in the tax code naturally drives the entire economy from “a” to “d” as profit per investment in the short term is very much driven to “d” while societal benefit should emphasize towards “a”.

    3) The quality of that baseline for the future will vwry much depend on how socialized (like the dog) the next government will be. Radical Intelligence in laying out a complete range of programs to claw back monies stolen and otherwise hijacked, and to create socialized green economics that will create real wealth again will go a long ways to making the U.S. and the World a much more pleasant or at least much less unpleasant place to live. Otherwise the Mad Max movies will be looked back on as very optimistic.

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