Euro markets are down 3-6% already, Asian markets are down in limited holiday trading off 4% and the Dow is set to open up with a 350-point drop on the opening bell. We will see the Dow hit trading curbs, most likely tripping the 500-point loss circuit breaker before lunch. This week is going to be a disaster, and it's just the beginning.
Trying to unravel Lehman's $700 million Gordian knot of securities and bad investments will take time, and it's time the sector doesn't have. Crisis of confidence doesn't begin to describe the underlying problem, which is that all the investment banks are tied up in securitized mortgage garbage. They will keep falling like dominoes, and the speed of the collapse will only increase now. Once one set of blocks is knocked out from under the pyramid scheme, the whole structure becomes unstable. It won't take much to take the whole thing down.
That "much" that it won't take? This weekend's triple meltdown. Now the boil has been lanced, and the pain is really going to begin.
Remember, the GOP says our economy is still strong, and everything is fine.
Do you still believe that?
Our next President has to deal with this crisis. It has exploded onto the front pages of every newspaper and the tickers of every cable news channel. This crisis of confidence is now getting ready to pull the whole thing down. Mike Allen at Politico takes a look at what all this means for Obama and McSame.
1. The candidates had hoped to put off their detailed prescriptions until they were in office, unrolling an economic agenda in conjunction with an address to the new Congress. Now, there's no way to duck it.
2. The new crisis crowds the candidates’ agendas in the stretch run, keeping them from talking about the issues that they had planned to focus on. But the candidates are creatively trying to meld the disaster into their existing messages.
3. Just like the markets, however, each candidate faces an enormous downside risk: Troubled times could make voters less likely to take a chance on Obama, with his shorter time in Washington. McCain could pay the price for the economic disruption on a Republican's watch, or if he looks like he doesn’t have the energy and creativity to reassure a worried nation.
4. They will also be more constrained when they get to Washington, with analysts estimating that the government takeover of mortgage giants Fannie Mae and Freddie Mac is likely to cost the Treasury $100 billion to $300 billion.
As disastrous as this is, I believe it favors Obama. This takes Sarah Palin off the front pages and puts the spotlight straight back on the issues, where Obama has the advantage if he can attack McSame's economic policy. He's already going on the offensive, saying that the Republicans have dropped the ball on the economy one time too many and now Main Street is paying for Wall Street's mistakes.
But McSame can make major inroads here if he keeps up his scare tactics and plays the fear card. I expect some brutal ads from them saying Obama's not ready and only McSame The War Hero(tm) can save America.
We'll see. Sarah Palin was a game-changer. But the game just got changed again.