Never have politics and investment become more intertwined. The credit crisis came at the weakest possible moment of the American political cycle, the last period of an outgoing Presidency. The first serious sign that subprime mortgages were toxic came in the middle of 2007, approximately six months before the start of the 2008 primaries. The first crisis came in August 2007. When the President put the Paulson Bill to Congress, his authority was at its lowest, and he initially failed to persuade Congress to pass the Bill. As a result the United States was unable to give the leadership which the financial world expected. In the early 1930s, the last year of the Hoover Presidency produced a similar situation. Hoover was unable to persuade his successor, Franklin Roosevelt, to support his policies in the period between the election in November 1932 and Roosevelt’s inauguration on March 4th, 1933. Roosevelt felt that he would become committed to the Hoover programme which he regarded as a failure.
Hoover, for his part, felt that Roosevelt was unpatriotic in refusing to support measures which he regarded as essential to the national interest. There was a complete breakdown between the outgoing and the incoming Presidents, and between the two parties. In his first 100 days, Roosevelt was able to establish his personal authority and enact the first law of the New Deal.
That delay of four months between the election and the transfer of authority was seen to be far too long, and it was reduced for two months by moving the inauguration back to January. Whichever candidate wins – and I think it will probably be Senator Obama – will only have two months to prepare for office and assemble his administration. Even so, President Bush has seen his own authority fade away, long before he had to leave the White House.
There has been a similar situation in some European countries, though Nikolas Sarkozy, the French President, is still new to office. In particular, Britain is coming close to an election which cannot be postponed beyond June 2010, and will probably actually be held in May of that year. Recent opinion polls suggest that the Conservatives will win the election when it comes. Some commentators think that the Labour Prime Minister, Gordon Brown, will benefit from the credit crisis, because it plays to the strengths of his experience as an ex-Chancellor of the Exchequer.
Nevertheless, there is a widespread public feeling in most or all countries, that this was an avoidable crisis. Between August 2007 and August 2008, the nature of the crisis, with “toxic debt” as bank security and the freezing of the interbank market, were perfectly well know to the bankers, the regulators, the central bankers and the governments of the world. For a year, they did little or nothing to prepare for the economic tornado. They may have hoped that the gale would simply blow itself out. In fact, it blew their houses down.
In future elections, the authorities will be held to account. They had a year in which to do something; they did next to nothing – they will not be forgiven.
for Markets and Money