A Random Thought...

We are in a financial crisis. The government has taken some bold and controversial steps to resolve some of the problems and they don't seem to be working. The latest step is the proposed $700 billion bailout package. The problem is that few if any institutions are willing -- particularly in the last three weeks--to risk their capital by lending it to anyone else. In short, they are afraid and have lost confidence in the government and finacial sector.

No news there.

But why are they so afraid?

The steps the Fed has taken thus far should have calmed many worries. Opening the lending window made capital available to banks to cover potential losses from the mortgage melt-down (assuming it doesn't suddenly get worse). The government's judicious handling of Lehman Brothers vs AIG should boost confidence that Washington is applying reason to its moves (unless they stop applying reason).

Why so little confidence?

Maybe, about three weeks ago, the people who run these institutions saw something happen that led them to believe that the recent years of fiscal and monetary imbecility might just continue.

Maybe, they watched the Republican party nominate an utterly unqualified small-town mayor with seriously goofy ideas to be the Vice President to a 72 year old Presidential candidate who has had two episodes of melanoma already.

Maybe, after watching that spectacle, they ran home, slit open the proverbial mattress and started stuffing their cash inside.

Economists and financiers do a lot of analysis based on reams of data, but it all comes down to confidence in the end. And, frankly, Rocket J. Squirrel and his trusty sidekick Bullwinkle don't inspire confidence.