The tone out of Washington, D.C. is changing. Somewhere, somehow, some conclusions have been drawn about how to handle the financial and economic crises. They aren't being publicized yet, most likely they haven't completely jelled. In a nutshell, there has been a complete loss of confidence among the political classes of the ability of the financial elite to manage its own affairs and a corresponding shift in the balance of political power.
This is not a partisan matter. The Senator who called on the responsible AIG executives to do the honorable thing and commit suicide was a Republican. The suggestions that the AIG bonuses be confiscated through punative taxation are bipartisan. Vikram Pandit and Ken Lewis are increasingly coming across as shrill, defensive and utterly out of touch.
I suspect that to some extent this shift is a product of public mood, and to some extent its the product of reasonably accurate short term economic forecasting. The public is beginning to bay for blood. That blood lust is only going to intensify as the strength of the recession is increasingly felt by more and more people. Totally unrelated, a further declining in housing prices is almost inevitable, and any economic modeling of that will predict the demise of much of what's left of the financial services sector. Basically, the big banks are on their collective deathbed. I'm sure there will be survivors, but they will be the survivors that the government has selected.
In a nutshell, it's time to start thinking in terms of the political dynamic, rather than in terms of the existing structure of the financial services sector and the ordinary functioning of capital markets. Not that anybody is ready of a such an adult conversation in public.
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