Right now we are watching a conflict blossom between the financial elite in this country and the political class. This is kind of fun because for the last generation the political class has turned itself into the handmaiden of the political elite (a handmaiden being a euphemism for an Emperor's Club escort), and the financial elite has come to regard the political class with all the trust and respect an Emperor's Club escort gets from her john.
Now, the financial elite collectively has a world view that would have fear and greed serving as the emotional yin and yang driving human behavior. And God knows there is room for the intrusion of behavioral sciences into economic analysis, and it is finally beginning as an offset to the quantative approach so mainstream today. (Fear and greed is just a simplified and bastardized summation of the consideration of behaviorial aspects of market performance and those who worship at the altar of Keynes may prefer the term animal spirits.)
But there is more to the world that fear and greed. Enter the political classes, an intrinsically messier group of people than the financial elite. Traditionally these guys have had their own simplistic yin and yang of the levers of power--the carrot and the stick. The donkey carries his load--feed him a carrot, the mule balks--smack him with the stick. It's roughly as sophisticated as the fear and greed analysis of market movements, and every bit as useful.
The Emperor's Club escorts are still operating on their johns' terms. They are thinking in terms of fear and greed. They need a dose of the old paradigm shift. As the freed slave told ole' Massah, 'de bottom rail on top now.'
It will take a couple of months, and a few more cards will have to turn, but eventually, the political class, or at least some of the less bent over elements within it, will realize that carrots and sticks, not fear and greed are what are operative in the current environment. It would premature, at this point, to start publicly brandishing the stick. It would not be premature to discontinue the endless appeals to greed to get the financial elite to do what it needs to do to salvage its sorry situation. It would not be premature to stop denying the realities of which the public is properly fearful. It would be premature to begin privately reminding people of influence within the financial elite that the stick does exist and has been dusted off. (The best targets for such reminders might be board members, legal counsel, asset managers, anybody but the managements of the institutions themselves, who would find being cut out of the loop even more terrifying than hearing the news directly.) The pretense that this is a liquidity crisis and that we are all doomed if the banks fail is growing thin.
The banks have failed, we are not all doomed, or at least we are not dead yet. But we need to start preparing for the world to come, rather than trying to prop up what's already dead and resuscitate the zoombies.