Reuters reports on a trend, the exact opposite of which was predicted at the peak in July:

Oil fell nearly 6 percent on Monday as further indicators of falling demand linked to a potential recession offset OPEC plans to reign in output. U.S. crude settled down $3.90 at $63.91 a barrel, after October saw the steepest monthly price decline ever for oil as global demand slowed. London Brent crude dropped $4.84 to settle at $60.48 a barrel. Oil hit a record $147.27 a barrel in mid-July

Just remember where things are heading the moment someone says, “This time it’s different.”

Business historian John Steele Gordon takes us on a tour of American financial disasters. This is now:

in 1995, regulations adopted by the Clinton administration took the Community Reinvestment Act to a new level. Instead of forbidding banks to discriminate against blacks and black neighborhoods, the new regulations positively forced banks to seek out such customers and areas. Without saying so, the revised law established quotas for loans to specific neighborhoods, specific income classes, and specific races. It also encouraged community groups to monitor compliance and allowed them to receive fees for marketing loans to target groups.

But the aggressive pursuit of an end to redlining also required the active participation of Fannie Mae, and thereby hangs a tale. Back in 1968, the Johnson administration had decided to “adjust” the federal books by taking Fannie Mae off the budget and establishing it as a “Government Sponsored Enterprise” (GSE). But while it was theoretically now an independent corporation, Fannie Mae did not have to adhere to the same rules regarding capitalization and oversight that bound most financial institutions. And in 1970 still another GSE was created, the Federal Home Loan Mortgage Corporation, or Freddie Mac, to expand further the secondary market in mortgage-backed securities.

This represented a huge moral hazard. The two institutions were supposedly independent of the government and owned by their stockholders. But it was widely assumed that there was an implicit government guarantee of both Fannie and Freddie’s solvency and of the vast amounts of mortgage-based securities they issued. This assumption was by no means unreasonable. Fannie and Freddie were known to enjoy lower capitalization requirements than other financial institutions and to be held to a much less demanding regulatory regime. If the United States government had no worries about potential failure, why should the market?

Forward again to the Clinton changes in 1995. As part of them, Fannie and Freddie were now permitted to invest up to 40 times their capital in mortgages; banks, by contrast, were limited to only ten times their capital. Put briefly, in order to increase the number of mortgages Fannie and Freddie could underwrite, the federal government allowed them to become grossly undercapitalized — that is, grossly to reduce their one source of insurance against failure. The risk of a mammoth failure was then greatly augmented by the sheer number of mortgages given out in the country.

That was bad enough; then came politics to make it much worse. Fannie and Freddie quickly evolved into two of the largest financial institutions on the planet, with assets and liabilities in the trillions. But unlike other large, profit-seeking financial institutions, they were headquartered in Washington, D.C., and were political to their fingertips. Their management and boards tended to come from the political world, not the business world. And some were corrupt: the management of Fannie Mae manipulated the books in order to trigger executive bonuses worth tens of millions of dollars, and Freddie Mac was found in 2003 to have understated earnings by almost $5 billion.

Both companies, moreover, made generous political contributions, especially to those members of Congress who sat on oversight committees. Their charitable foundations could be counted on to kick in to causes that Congressmen and Senators deemed worthy. Many of the political contributions were illegal: in 2006, Freddie was fined $3.8 million — a record amount — for improper election activity.

That was then:

the collapse of 1836. Thanks to a growing population, prosperity, and the advancing frontier, poorly regulated state banks had been multiplying throughout the 1830’s. In those days, chartered banks issued paper money, called banknotes, backed by their reserves. From 1828 to 1836, the amount in circulation had tripled, from $48 million to $149 million. Bank loans, meanwhile, had almost quadrupled to $525 million. Many of the loans went to finance speculation in real estate.

Much of this easy-credit-induced speculation had been caused, as it happens, by President Andrew Jackson. This was a terrific irony, since Jackson, who served as President from 1829 until 1837, hated speculation, paper money, and banks. His crusade to destroy the Second Bank of the United States, an obsession that led him to withdraw all federal funds from its coffers in 1833, removed the primary source of bank discipline in the United States. Jackson had transferred those federal funds to state banks, thereby enabling their outstanding loans to swell.

The real-estate component of the crisis began to take shape in 1832, when sales by the government of land on the frontier were running about $2.5 million a year. Some of the buyers were prospective settlers, but most were speculators hoping to turn a profit by borrowing most of the money needed and waiting for swiftly-rising values to put them in the black. By 1836, annual land sales totaled $25 million; in the summer of that year, they were running at the astonishing rate of $5 million a month.

While Jackson, who was not economically sophisticated, did not grasp how his own actions had fueled the speculation, he understood perfectly well what was happening. With characteristic if ill-advised decisiveness, he moved to stop it. Since members both of Congress and of his cabinet were personally involved in the speculation, he faced fierce opposition. But in July, as soon as Congress adjourned for the year, Jackson issued an executive order known as the “specie circular.” This forbade the Land Office to accept anything but gold and silver (i.e., specie) in payment for land. Jackson hoped that the move would dampen the speculation, and it did. Unfortunately, it did far more: people began to exchange their banknotes for gold and silver. As the demand for specie soared, the banks called in loans in order to stay liquid.

The result was a credit crunch. Interest rates that had been at 7 percent a year rose to 2 and even 3 percent a month. Weaker, overextended banks began to fail. Bankruptcies spread. Even several state governments found they could not roll over their debts, forcing them into default. By April 1837, a month after Jackson left the presidency, the great New York diarist Philip Hone noted that “the immense fortunes which we heard so much about in the days of speculation have melted like the snows before an April sun.” The longest depression in American history had set in.

Many people had their hands in the till in this disaster. Wasn’t the first time and won’t be the last. It would be nice to see some of them go to jail, however.

The Democratic presidential candidate:

if somebody wants to build a coal-powered plant, they can; it’s just that it will bankrupt them because they’re going to be charged a huge sum for all that greenhouse gas that’s being emitted.

Maybe he’ll clarify his remarks on Wednesday. Maybe.

According to Bloomberg, a substantial part of our current mess began in 1998:

Greenspan, Treasury Secretary Robert Rubin and SEC Chairman Arthur Levitt opposed an attempt by Brooksley Born, head of the Commodity Futures Trading Commission, to study regulating over-the-counter derivatives. In 2000, Congress passed a law keeping them unregulated.

Levitt said he went along with concerns by Greenspan and Rubin that Born’s action might throw derivatives contracts into “legal uncertainty.” He said he now regrets that he didn’t press a presidential advisory group “to take a closer look” at the issue. Rubin said in an interview that “you could have had chaos” if Born’s plan found existing derivatives contracts invalid because they weren’t traded on an exchange. Both Born and Greenspan declined to comment.

Outstanding credit-default swaps, derivative contracts used to hedge or speculate on a company’s debt, would grow to $62 trillion from $631 billion…Ninety percent of the trades were concentrated in the hands of 17 banks.

100x the risk exposure in just ten years. It takes a real spirit of bi-partisanship, not to mention financial entrepreneurship, to get so far so fast. Thanks a lot, fellas.

Martin Wolf in the FT makes some points we generally agree with on the shocking economic statistics pictured above — wealth plummeting and liquidity disappearing:

the idea that a quick recession would purge the world of past excesses is ludicrous. The danger is, instead, of a slump, as a mountain of private debt -– in the US, equal to three times GDP –- topples over into mass bankruptcy. The downward spiral would begin with further decay of financial systems and proceed via pervasive mistrust, the vanishing of credit, closure of vast numbers of businesses, soaring unemployment, tumbling commodity prices, cascading declines in asset prices and soaring repossessions. Globalisation would spread the catastrophe everywhere…Everything possible must be done to prevent the inescapable recession from turning into something worse. Many of the needed actions were laid out in an article on the FT’s Comment page this week by Columbia University’s Jeffrey Sachs. I would stress five points.

First, as Oxford university’s John Muellbauer argues, deflation is a real danger. Yet deflation is lethal for indebted economies. Today, short-term interest rates look far too high in the eurozone and the UK. Central banks need to look at their economies afresh and cut rates by at least 1, and ideally 2, percentage points.

Second, the only way to let the private sector deleverage, without mass bankruptcy and huge falls in spending, is by substituting the asset everybody wants: government debt. Contrary to Professor Sachs, I think tax cuts are indeed part of the solution.

Third, it is crucial that lending be sustained both inside and among economies. Having gone to such trouble to recapitalise banks, governments should insist that their money be used to sustain credit lines to those likely to remain solvent. If banks are unwilling to do this, central banks will have to replace them, as the Federal Reserve is now doing.

Fourth, it is in the vital self-interest of the affected high-income countries to keep hard-hit emerging economies afloat through the crisis.

Finally, it is equally evident that the world will not return to equilibrium if countries in strong financial positions do not expand domestic demand. The day of the housing bubbles and huge current account deficits in high-spending high-income countries is gone. Those who rely on current account surpluses to sustain demand must think again.

Decisions made over the next few months may well shape the world for a generation. At stake could be the legitimacy of the open market economy itself. Those who view liquidation of past excesses as the solution fail to understand the risks. The same is true of those dreaming of new global orders. Let us first get through the crisis.

Art Laffer, whose opinions we often agree with, has a very different view as to what the right course of action is in this situation. Maybe he’s right, maybe he’s wrong, and maybe (in part) he’s trying to sell his new book. Based on our study and understanding of banking and the risks unleashed when high leverage meets panic, and we think that Mr. Wolf has the better argument in our current circumstances. Mr Laffer says that opinions such as ours “will be viewed in much the same light as what Herbert Hoover did in the years 1929 through 1932.” We shall see.

The first decade of this century has been remarkable. As we’ve said, the book will be a bestseller when it is written. Lots of villains, few heroes. Bloomberg:

The bundling of consumer loans and home mortgages into packages of securities — a process known as securitization — was the biggest U.S. export business of the 21st century. More than $27 trillion of these securities have been sold since 2001, according to the Securities Industry Financial Markets Association, an industry trade group. That’s almost twice last year’s U.S. gross domestic product of $13.8 trillion.

The growth over the past decade was made possible by overseas banks, which saw the profits U.S. financial institutions were making and coveted the made-in-America technology, much as consumers around the world craved other emblems of American ingenuity from Coca-Cola to Hollywood movies. Wall Street obliged, with disastrous results: two-thirds of a trillion dollars in bank losses, about 40 percent of them outside the U.S.

“Securitization was based on the premise that a fool was born every minute,” Joseph Stiglitz, a professor of economics at Columbia University in New York, told a congressional committee on Oct. 21. “Globalization meant that there was a global landscape on which they could search for those fools — and they found them everywhere.”

European banks, in particular, were eager adopters. Securitizations in Europe increased almost sixfold between 2000 and 2007, from 78 billion euros ($98 billion) to 453 billion euros, according to the European Securitization Forum, a trade organization.

Three Icelandic banks borrowed enough to buy $228 billion of assets, most of them securitizations, turning the country’s financial system into a hedge fund. All three banks have been nationalized by the government…

A McCain adviser said: “Europeans call it socialism, Americans call it welfare, and Barack Obama calls it change.” But doesn’t that socialism charge ring a little hollow, (a) among young people in the post-Soviet world, and (b) in an environment where the Republican administration is doling out more than a trillion dollars in bailouts of one sort or another to an ever-lengthening laundry list of industries?

Recently the media and some blogs have written a lot about “deer in the headlights” moments, mostly referring to the Republican ticket. Here’s a new story. AP:

Health officials shut down a suburban Buffalo restaurant after an inspector found employees butchering a dead deer inside the business. Erie County Health Department officials said they got a tip Friday about a dead deer in the China King restaurant in the town of Hamburg, just south of Buffalo. An inspector soon arrived and saw the deer being butchered in the kitchen…Officials don’t know whether the deer had been killed by…a vehicle. They said there was no indication the deer meat was served to any customers.

The more you think about it, there just might be some similarities between this beleaguered restaurant business and the beleaguered media business in their approach to their professional tasks.

Editor and Publisher reports that newspaper circulation continues to tumble, as it has for a number of years now:

USA TODAY — 2,293,310 — 0.01%
THE WALL STREET JOURNAL — 2,011,999 — 0.01%
NEW YORK TIMES — 1,000,665 — (-3.58%)
LOS ANGELES TIMES — 739,147 — (-5.20%)
DAILY NEWS, NEW YORK — 632,595 — (-7.16%)

NEW YORK POST — 625,421 — (-6.25%)
THE WASHINGTON POST — 622,714 — (-1.94%)
CHICAGO TRIBUNE — 516,032 — (-7.75%)
HOUSTON CHRONICLE — 448,271 — (-11.66%)
NEWSDAY — 377,517 — (-2.58%)

THE ARIZONA REPUBLIC — 361,333 — (-5.51%)
SAN FRANCISCO CHRONICLE — 339,430 — (-7.07%)
THE DALLAS MORNING NEWS — 338,933 — (-9.28%)
BOSTON GLOBE — 323,983 — (-10.18%)
STAR TRIBUNE, MINNEAPOLIS — 322,360 — (-4.26%)

In the recent past, the New York Times, number 3 in its home market, was able to present itself as growing in circulation because of its increases in national distribution. But, even with that, the NYT’s circulation is down nearly 20% overall in the last 15 years. Will the Times begin a comeback next Tuesday?

Bloomberg reports that the hedge fund industry is having a little problem:

U.S. hedge-fund managers may lose 15 percent of assets to withdrawals by year-end while their European rivals shed as much as 25 percent…Combined with investment losses, industry assets may shrink to $1.3 trillion, a 32 percent drop from the peak in June…Investors withdrew a record $43 billion from hedge funds last month. “There’s a bigger push by hedge funds to mitigate risk,” said Matt Simon…

It is said that “a hedge is an investment that is taken out specifically to reduce or cancel out the risk in another investment.” These hedge funds don’t appear to have hedged their bets very well. Perhaps they should have chosen a more appropriate name.

Though it may be true that a new administration will find areas in which to cut spending by 25%, that may be the exception rather than the rule. Generally speaking, we expect that it will be a neck and neck race among the most fun new spending initiatives we may get in the coming years. For example, the Global Poverty Act seems like a rollicking good time for US taxpayers, but we think the new Department of Peace and Non-Violence takes first prize. The Corner:

The DPN-V would house such vital new agencies as The Office of Peace Education & Training, the Office of Domestic Peace Activities, the Office of International Peace Activities, the Office of Technology for Peace, the Office of Arms Control and Disarmament…, the Office of Peaceful Co-Existence and Non-Violent Conflict Resolution, and, of course, the Office of Human Rights and Economic Rights.

Funny thing about those who prattle on about peace and the “peace-loving people of the world” and so forth. Their own countries don’t appear to do very well. Perhaps it’s inevitable that America would flirt with such foolishness. We’ve had it so prosperous for so long that many — certainly the young people — have no idea about the hard past we’ve so recently left behind. As the man said: “Example is the school of mankind, and they will learn at no other.” Sad but true.

A market observer back in April appeared bold and confident about the skyrocketing price of oil:

these moves speak to something so fundamental as to be outrageously obvious: Oil is not going back to $70, where ag plantings might be unclear and nat gas might be just a bit better than oil. It is not going back to $80, where it made good economic sense to get more fertilizer or drill for more natural gas. It may not even go back to $90, where food for oil is outrageously profitable and natural gas is a shoo-in. A retreat to $100 seems hard now. As someone who has been saying that oil is headed to $125 — been my thought now for two years — I have to say that these prices for these ag and nat gas companies are NOT TOO HIGH to pay.

Four days after that was written, we warned about the dangers and instability of parabolic prices moves, such as that in oil. Though oil topped out at $147 in July, it is now in the low to mid $60’s, even after OPEC announced a 1.5 million bpd cut in production. How times change — and so quickly.

Alan Reynolds sees $4.3 trillion in incremental spending or reduced tax revenues in Senator Obama’s economic plan. Who will pay the bill? WSJ:

The new president…will start out facing a budget deficit of at least $1 trillion, possibly much more. Sen. Obama has nonetheless promised to devote another $1.32 trillion over the next 10 years to several new or expanded refundable tax credits and a special exemption for seniors, according to the Urban Institute and Brookings Institution’s Tax Policy Center (TPC). He calls this a “middle-class tax cut,” while suggesting the middle class includes 95% of those who work.

Mr. Obama’s proposed income-based health-insurance subsidies, tax credits for tiny businesses, and expanded Medicaid eligibility would cost another $1.63 trillion, according to the TPC. Thus his tax rebates and health insurance subsidies alone would lift the undisclosed bill to future taxpayers by $2.95 trillion — roughly $295 billion a year by 2012.

But that’s not all. Mr. Obama has also promised to spend more on 176 other programs, according to an 85-page list of campaign promises (actual quotations) compiled by the National Taxpayers Union Foundation. The NTUF was able to produce cost estimates for only 77 of the 176, so its estimate is low. Excluding the Obama health plan, the NTUF estimates that Mr. Obama would raise spending by $611.5 billion over the next five years; the 10-year total (aside from health) would surely exceed $1.4 trillion, because spending typically grows at least as quickly as nominal GDP.

A trillion here, a trillion there, and pretty soon you’re talking about real money. Altogether, Mr. Obama is promising at least $4.3 trillion of increased spending and reduced tax revenue from 2009 to 2018 — roughly an extra $430 billion a year by 2012-2013. How is he going to pay for it?

Raising the tax rates on the salaries, dividends and capital gains of those making more than $200,000-$250,000, and phasing out their exemptions and deductions, can raise only a small fraction of the amount. Even if we have a strong economy, Mr. Obama’s proposed tax hikes on the dwindling ranks of high earners would be unlikely to raise much more than $30 billion-$35 billion a year by 2012…

The Joint Tax Committee reports that the bottom 60% of taxpayers with incomes below $50,000 paid less than 1% of the federal income tax in 2006, while the 3.3% with incomes above $200,000 paid more than 58%. Most of Mr. Obama’s tax rebates go to the bottom 60%. They can’t possibly be financed by shifting an even larger share of the tax burden to the top 3.3%.

Senator Obama said, “we’ve got to grow the economy from the bottom up. What I’ve called for is a tax cut for 95 percent of working families, 95 percent.” Of course that has been criticized for the obvious reasons. But such is the current willing suspension of disbelief in this political season that few seem to care about the unreality of any of this — at least for the moment.

The WSJ reports that the slowdown in China that we’ve been talking about for so long is beginning to play out pretty much as predicted (after a long period of our being early on this):

China’s booming economy is cooling more rapidly than most forecasters had expected…China’s statistics bureau reported Monday that economic growth slowed to a year-to-year expansion of 9% in the third quarter, still healthy but sharply down from 10.1% in the second quarter and 10.6% in the first. For the year, China’s growth is likely to be below 10% for the first time since 2002. Many economists now forecast it to fall to as low as 8% next year, even assuming Beijing takes more measures to boost growth.

Exports are rapidly softening as demand from big customers like the U.S. and Europe drops…Official data on retail sales show them growing 17.9% in September in real terms, up from a 13% to 14% pace earlier this year. But that apparent acceleration is hard to square with outright declines in car sales, down two months in a row after years of double-digit growth, and airline travel, which has decreased every month since May. Sales of major home-furnishing and appliance retailers also are off. Economists suspect actual spending is weaker than the headline figures indicate…Commodity prices have plunged in recent weeks…

China has yet to achieve the kind of scale needed to single-handedly drive the global economy. China ranks 100th in the world in terms of per-capita income, and accounts for 6% of the global economy at market-exchange rates. After adjusting for purchasing-power parity, as many economists favor, China still accounts for only about 10% of the world economy…China’s domestic demand simply isn’t big enough to replace the enormous role played by the U.S. While China’s 1.3 billion people collectively consumed about $1.2 trillion last year, America’s 300 million people consumed $9.7 trillion.

We’ve seen in recent months just how awful banking, risk management and accounting for loans and securities have become in the West; do we imagine these things are any better in China?

Money in politics was called a clear invitation to corruption by the current Republican presidential candidate. Now it’s called “tactical flexibility” in polite company. Bloomberg:

Obama, the first major-party nominee to shun public funding for the general election since the system was put in place, reported taking in $150 million in September, the most ever raised by a presidential candidate in one month and more than twice as much as his previous record of $66 million in August. He entered September with $95 million in the bank. Along with the money he raised last month, the Democratic National Committee took in $50 million, which can be spent on his behalf. Analysts say Obama and the party likely will at least match those figures in October, giving the Democrat about $500 million for the two-month campaign ending with the Nov. 4 election.

McCain accepted $84.1 million in federal money, barring him from directly raising private funds except to cover certain legal and accounting costs. Combined with the $103 million in the bank he had at the start of September, plus $66 million the Republican National Committee raised in September, and another $50 million advisers said the party will raise this month, McCain will have about $300 million for the general election.

Obama’s decision to opt out of public financing “means that he has tactical flexibility as we move into the final couple of weeks of the campaign,” said Arthur Sanders, chairman of the Department of Politics and International Relations at Drake University in Des Moines, Iowa. “McCain cannot answer in kind.”

(The Bloomberg article says that Obama has raised $500 million; other analyses credit Obama with a $600 million cash haul, some of it from questionable sources.) Here are the figures for the 2004 Kerry campaign on total spending and spending per vote via Wikipedia: John Kerry (D) $326,236,288 / 59,028,111 = $5.52; we’ll have to check back in early November and see how the current contest compares.

First, read this NYT piece about a fateful rule change at the SEC in 2004. If you have time, listen to the bland 55 minute discussion among the SEC members that is linked in the NYT piece. Now pay close attention to the last paragraph on the first page of this letter, from Leonard D. Bole, the sole dissenting commenter on the SEC’s terribly unwise rule change. Grievous mistakes often look like the ordinary course of business at the time. A sobering thought.

It was only a few months ago that Goldman Sachs predicted oil prices to average $141 during the second half of this year. Now the firm says that prices could touch $50 in the next couple of months. How things have changed:

Goldman Sachs said the financial crisis had already done more damage than it expected to commodity demand and warned that a slide to $50 a barrel for oil could be possible…The bank cut its year-end U.S. crude oil target to $70 a barrel, down from a previous forecast of $115 a barrel, and slashed its average 2009 forecast by a third…

And JP Morgan is on the same bandwagon. WSJ:

Crude-oil futures tumbled near $75 a barrel, bringing prices to levels last seen more than 13 months ago. Gasoline futures also tumbled. J.P. Morgan became the latest Wall Street firm to aggressively ratchet down its oil-price forecast. The bank said it now sees crude averaging $74.75 in 2009. And — in contrast with most government forecasts — J.P. Morgan said it sees global demand shrinking next year.

All of this brings to mind the Sports Illustrated moment in the WSJ in July: “Oil’s historic ascent from $100 to nearly $150 a barrel in just six months is lending weight to a far grimmer prediction: Crude could reach $200 a barrel by the end of the year.” Was July really only a few months ago?

The bankers seem to have made the same mistake twice, and it nearly brought the system down again. The Fed Chairman who is a student of the Depression and the Treasury chief who was CEO of Wall Street’s perhaps most storied name, appear to have repeated one of the follies that brought about the Great Depression — and they have been scrambling to recover from this mistake for a month.

One month ago, the Fed and the Treasury let Lehman Brothers go bankrupt, and all hell broke loose, not just because of mortgages, but because of Lehman’s systemically toxic CDS’s — unregulated insurance policies without reserves with other banks — that could bring down the entire industry. (This is also the view of the French finance minister.) The entire banking system seized up; the banks were set up like dominoes to sequentially fail. Short sellers had a no risk strategy to bet on bank failures and the Treasury had created a Doomsday Machine that would take them down, one after another. Credit and stock markets crashed, and good news had become irrelevant.

In effect, the US government had created one of the conditions that turned the recession of 1929 into the Great Depression. In that earlier time, the New York Clearing House banks allowed the small bank with the big name, Bank of the United States, to fail. After that failure, which would have been so easy to avoid, another 8000 banks failed. Of course, the government at that time had to wait until 1933 for the creation of the FDIC and other tools to stem the runs on the banks.

For a month the government has been improvising various solutions to the Lehman mistake, and often it has looked like making sausages. It hasn’t been pretty, and no one knows whether it will be ultimately effective. But the actions of the Euro-zone countries, after their initial stumble, are encouraging. Likewise, the reaction to the revised Paulson plan, which has morphed from buying $700 billion in mortgages to providing a much needed $250 billion in new bank capital, also appears positive. It is possible that we have seen a version of 1929-1933 play out in a very short time (as events are often accelerated these days). But there was still a long way to go for the US economy to recover after 1933.

UPDATE — Andy Kessler has a good summary in the WSJ of what US and European authorities are trying to do with their remedial measures.

Fox News reports an interesting exchange between a voter and Senator Obama:

“Your new tax plan is going to tax me more, isn’t it?” the plumber asked, complaining that he was being taxed “more and more for fulfilling the American dream.”

“It’s not that I want to punish your success. I just want to make sure that everybody who is behind you, that they’ve got a chance for success too,” Obama responded. “My attitude is that if the economy’s good for folks from the bottom up, it’s gonna be good for everybody … I think when you spread the wealth around, it’s good for everybody.”

No doubt that’s not a great comfort to the plumber and his family, but at least it’s consistent with the candidate’s position on capital gains taxes. HT: The Corner

We thought that the market would like the (tardy) resolve of the Euro-zone countries, as well as the Treasury’s overtures on increasing bank capital. The market reacted positively. WSJ:

Stocks snapped a brutal losing streak in resounding fashion as the Dow Jones Industrial Average enjoyed its biggest one-day point gain ever following new moves by governments to shore up the global financial system. The Dow leapt 936.42 points, or 11.1%, to 9387.61. The rally ended an eight-day slide in which the blue-chip measure plummeted almost 2,400 points and endured the worst full-week performance in its 112-year history. Monday’s move was the best one-day closing point gain ever for the Dow and its biggest one-day percentage climb since March 15, 1933.

The climb in the Dow on March 15, 1933 took it from 53.84 to 62.10, by the way. Of course, it wasn’t until 1954 that the Dow undid the damage that had been done in 1929.

A week ago, the Euro-zone countries punted, and markets crashed around the world. Today’s meeting in Paris went a little smoother. NYT:

Taking their cue from a rescue plan announced last week by Britain, the European countries pledged to take equity stakes in distressed banks and vowed to guarantee bank lending for periods up to five years. Both France and Germany were planning to unveil national rescue packages on Monday worth hundreds of billions of euros, official said.

“The meeting that we had was exceptional,” President Nicolas Sarkozy of France, said at a news conference. “We need concrete measures, we need unity. That’s what we achieved. The plan on which we agreed today will be applied in all our respective states.” The plan “treats all the dimensions of the financial crisis,” Mr. Sarkozy said.

The Belgian finance minister, Didier Reynders, said, “We are committed in all European states to recapitalize banks if we establish a threat to solvency and a risk to the economy…The goal is to kick-start the interbank lending market”…Mr. Reynders said the European Central Bank had also committed to helping to unfreeze the commercial paper market, which companies use to finance day-to-day operations. Leaders of the 15 countries that use the euro did not put a price tag on any of their promises…

Bloomberg elaborated: “The key measures announced today are: a pledge to guarantee new bank debt issuance until the end of 2009; permission for governments to shore up banks by buying preferred shares; and a commitment to recapitalize any ’systemically’ critical banks in distress. France, Germany, Italy and other countries will announce national measures tomorrow, Sarkozy said. ‘I don’t even want to imagine what might happen’ if the markets react negatively, Klaus-Peter Mueller, head of the German banking association, said.” Indeed.