Saturday, July 23, 2011

Widespread Panic Gets Spread Wide By Someone

Prof. Jacobson at Legal Insurrection:

John Podhoretz notes that Obama is trying to talk the markets into a panic
as part of Obama’s political strategy (emphasis mine):

An enraged Barack Obama just took to the nation’s airwaves to announce his effort to strike a deal with Republican Speaker of the House John Boehner has fallen apart. Perhaps for the first time in American history, this president is literally using this press conference to create a financial panic over the weekend about the opening of the markets on Monday. He is warning of disaster on Monday. Clearly, he wants to use this as leverage to frighten the GOP into passing the plan proposed by Senate Minority Leader Mitch McConnell, which will push the debt ceiling problem into 2013, but it’s still an entirely new and astonishingly reckless gambit.

I agree with the analysis with one big exception, the use of the terms “first time” and “entirely new.”

Jacobson then recounts Obama's efforts during the stimulus discussions in early 2009, and his reaction at the time.

Let me recount 2008 -- and while it is certainly not a president doing so, but rather Senators Harry Reid and Chuck Schumer -- Democrats have before used talking the markets into a panic as part of their political strategy.

Thursday, June 26, 2008:

Schumer, a senior member of the Senate Banking Committee, who used his position of authority to communicate to the OTS and the FDIC that he was "concerned that IndyMac's financial deterioration poses significant risks to both taxpayers and borrowers," and that IndyMac "could face a failure if prescriptive measures are not taken quickly."

Everything might have been fine had Schumer stopped there, but Schumer (being Schumer) took the additional step of releasing the letter to the press.

Friday, July 11, 2008:

IndyMac Regulator, the Office of Thrift Supervision: "The OTS has determined that the current institution, IndyMac Bank, is unlikely to be able to meet continued depositors’ demands in the normal course of business and is therefore in an unsafe and unsound condition. The immediate cause of the closing was a deposit run that began and continued after the public release of a June 26 letter to the OTS and the FDIC from Senator Charles Schumer of New York. The letter expressed concerns about IndyMac’s viability. In the following 11 business days, depositors withdrew more than $1.3 billion from their accounts.”

Wednesday, October 1, 2008:

Senator Reid: "a major insurance company -- one with a name that everyone knows -- that's on the verge of going bankrupt,"

Thursday, October 2, 2008:

But with investors already on high alert after the Federal Reserve's rescue of insurance titan American International Group Inc. on Sept. 16, and with the credit crunch still making funding difficult for even the largest U.S. financial companies, Reid's comments were the equivalent of pouring gasoline on a grease fire. MetLife plunged $7.19, or 15%, to $40.96; Hartford dived $12.20, or 32%, to $25.91; and Prudential slid $7.15, or 11%, to $57.65.

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