It's always difficult to draw definitive conclusions from the markets -- particularly in these volatile times. What was Thursday all about? Was it Citigroup Inc., the financials in general buffeted by a larger recession, the off-track Detroit rescue, or simply, as Andy Kessler wrote Thursday in The Wall Street Journal, massive year-end selling? Or was it, as Paul Krugman suggests Friday in The New York Times, the growing sense of a vacuum in economic policymaking as the lame-duck Congress crawls out of D.C. and as Henry Paulson seems to be closing up shop, or at least tending to his legacy, as evidenced by his speech Thursday at the Reagan Library and the recent two-part profile in The Washington Post. Alas, that legacy may dissolve in front of him before he packs his bags. Indeed, both of Paulson's most recent decisions -- to abandon any attempt to buy toxic assets off bank balance sheets and to leave untouched the rest of the bailout money until Obama's team arrives -- are now getting some of the blame for the recent slaughter, particularly at too-big-to-fail Citi.
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Who knows if that's right. And of course Paulson has shown a propensity bordering on the promiscuous to change his mind. What we do know is that even when Paulson has been The Man of Action, there's been a large and growing vacuum next door at the White House. At best Paulson continues to be reactive; he does not seem to be working from any larger plan or policy. Even if you believe he's an ideologue, he's an uncertain ideologue, ratcheting between ideas and exigencies. But then so is -- well, was -- President Bush.
But there is a president-elect out there. It's extremely hard to criticize much about the impressive Obama transition, though the sideshow of the Clintons this week is particularly annoying given the seriousness of the market situation. It's clear by now that Obama chose not, as it was once widely anticipated, to select a treasury chief and White House economics team quickly, or at least announce one quickly. But given the vacuum in Washington, given what Krugman called potentially "irreversible" events that could occur between now and Jan. 20, how should the president-elect respond?
The fact is what the country, the world and the markets crave right now is less a treasury chief -- who isn't tired of the endless blather over Larry Summers or Tim Geithner? -- and more a coherent, sophisticated, multipart plan that probably includes a massive stimulus package, some scheme to relieve foreclosure pressures, some plan for Detroit, which probably should call for a federally financed bankruptcy restructuring, rehabilitation and consolidation, and some sense of how the remaining bailout money can relieve pressure on the banks and un-thaw credit. That's a lot -- which may well explain Obama's deliberate approach to this (and congressional Democrats' decision to send Detroit home to complete a meaningless homework assignment called "How I will do better"). But it's also true that these are complex plans that can be announced in broad strokes, though of course not fully implemented until after Jan. 20.
Still, these are extraordinary times. The public is scared, the markets are panicking, and the distress is visibly mounting. Unless Paulson does something strikingly effective over this weekend -- it looks like another crisis weekend -- Obama has the responsibility to begin, at least intellectually, to fill the vacuum. - Robert Teitelman
See Kessler's column from The Wall Street Journal
See Krugman's column from The New York Times
See Paulson profile from The Washington Post
See full transcript of Paulson comments
