There is plenty of money out there. This is not a problem of a shortage of money, it's a shortage of buyers. Buyers are lacking because there is a problem of confidence, a lack of trust. To fix that, we need less uncertainty. Accordingly, I'd like to hear the following very soon:
First, Obama should explain to the world that he understands that the financial markets are in great turmoil. He should acknowledge that this poses a threat to the global economy. He should say that he understands that this is therefore not a time to try to "change the world" with higher taxes on anyone, or any kind of radical restructuring of the American economy. He should promise to forego any attempts to raise taxes, especially taxes on capital, and only consider such a move once the economy and the financial markets are back on their feet. We have far bigger problems today than redistributing wealth are likely to solve.
Second, someone in the government should make it clear to the world's financial markets that the $1 trillion outstanding debt of Government Sponsored Entities such as Freddie Mac and Fannie Mae are now 100% backed by the full faith and credit of the US government. This is not a time to mince words (e.g., is the debt of the GSEs is "explicity" or "effectively" guaranteed by the US government?). The world's investors were shocked to learn that shareholders in Freddie and Fannie were wiped out when the government placed these GSEs in conservatorship, so they have reason to wonder whether the debt holders will be wiped out or not. I don't think there's any question: for the US government to not honor GSE debt would be a mistake of disastrous proportions; it would do unthinkable harm to the reputation of our government and undermine the very foundations of global financial markets that rely on US government guaranteed debt as the risk-free gold standard. Could this waffling have anything to do with the elections? Would assuming full responsibility for GSE debt imply adding that debt to the existing national debt? To be sure, adding $1 trillion to our national debt would not be the end of the world, but it certainly wouldn't burnish Bush's legacy. But I sure hope this isn't the reason for the semantics. (What I'm referring to here is the source of the fear that has driven the credit spreads on GSEs to historically wide levels, even as swap spreads have declined.)
Such are the issues that have investors trembling all over the world. And to think these fears could be banished with just the right combination of words....
Anyone have suggestions for other critical issues that need to be clarified?