In today's Guardian Ha-Joon Chang observes that much of the current crisis has less to do with economic policies or lack thereof than with the failure of governments to curb the power of ratings agencies and financial institutions that had just a few years ago brought the world to the brink of Depression. Now, at the least, they have triggered a financial panic the likes of which have hot been seen by anyone living.
Panic—generalized, objectless fear—is driving this sell-off, which has drained trillions of dollars in valuation from the world's markets and caused investors to flee to U.S. Treasuries as one of the few safe investment havens. That is correct: the Standard and Poor's downgrade of America's credit rating from triple A to double A-plus has had the effect of reinforcing the place of US. debt as the most secure in the world. That fact alone ought to slow the panic, but it does not.
The irony should be lost on no one that those trillions of losses would have covered increased taxes on the wealthy and still left trillions in profit that would not have vanished, because there would have been no panic.
The Obama put himself in front of the world yesterday in an attempt, we must assume to calm the markets. He failed. They have fallen more precipitously since he spoke, and the reason, I think, is that he failed to say, 'Basta!,' to the rating agencies and financial institutions. 'You have proved yourselves bad citizens, purveyors of false and misleading information for purposes of market manipulation. We are going to rein you in, and if you won't be reined in, we are going to shut you down.' That is a speech, the Obama lacks the ability and capacity to make. Indeed, yesterday we saw a leader shrinking from, not rising to, the occasion.
The result was more fear and more panicked selling.