How the Financial Mess will Effect the Presidential Election

When I began this blog, I didn't think my Economics background would be of more than passing relevance to my writing submissions, but things have a funny way of taking unexpected turns.

For several reasons, (mostly political and for job security), the $700 BILLION bailout plan went to defeat in the House yesterday by a vote of 228-205. The markets predictably reacted in a record setting way with the DJ Average down an unlucky 777 points and the S&P and Nasdaq actually down by slightly greater percentages. (As of Noon Tuesday, with no discernible additional news, the Dow is up over 200 points, which is what the market does after an overreaction, especially at the end of a quarter).

I am a Free Market guy who believes there is a time and place for regulations and intervention and this is definitely one of them. The big question is what.

Setting aside inflationary concerns for just a moment, I believe the best structural response would be for the Fed to make sure there is enough liquidity in the market, have the FDIC insure bank accounts up to a much higher level than the current $100,000 and let companies who made stupid mistakes fend for themselves. There will be collateral damage. People will lose jobs. People will see their investments lose value. Both are unfortunate (the first much more than the second), but they happen and people survive. What we need to prevent is a run on banks, etc. Confidence that money will be available to those who need/want it is imperative. If the Fed and FDIC can do that, a congressional bill like the one just defeated may not be necessary.

We'll see how close I am to what happens, but how is this situation going to effect the Presidential Election? I am getting the sense that one campaign may implode and unless Joe Biden uncorks a few YouTube classics in this Thursday's VP debate and Barack Obama is found to have some previously undisclosed skeleton in his closet, I think the impending doom is more likely to happen on the Repub side.

As Economics becomes a bigger and bigger issue in people's minds, John McCain and Sarah Palin have little chance of winning swing voters. When Economics becomes the top issue, it is perhaps the single time when a majority of voters really do want someone smarter than them to be in the White House. Heck, I really want people smarter than me in the White House and I have a Math and Economics degree and an MBA. John McCain and Sarah Palin have the ability to appeal to people on many levels, but educational background and extraordinary intelligence are not among them.

Thursday night is the VP debate and I am really rooting for Sarah Palin to hold her own because I really do not like publicly televised train wrecks. I think she will find a way to do OK, but if not, we may be closer to the end of this campaign than we think.