First, Robert J. Samuelson's A Baffling Global Economy:
"These questions go to the core of a great puzzle: the yawning gap between the U.S. economy's actual performance (poor, but not horrific) and mass psychology (almost horrific). June's unemployment rate of 5.5 percent, though up from 4.4 percent in early 2007, barely exceeds the average of 5.4 percent since 1990. Contrast that with consumer confidence, as measured by the Reuters-University of Michigan survey. It's at the lowest point since 1952 with two exceptions (April and May 1980).
Granted, the present U.S. economic slowdown -- maybe already a recession -- stems mostly from familiar domestic causes, dominated by the burst housing 'bubble.' The Bush administration's rescue of Fannie Mae and Freddie Mac, the struggling government-sponsored housing enterprises, is the latest reminder. Still, global factors, notably high oil and food prices, have aggravated the slump. The line between what's local and what's global seems increasingly blurred, and there is a general anxiety that we are in the grip of mysterious worldwide forces.
The good that globalization has done is hard to dispute. Trade-driven economic growth and technology transfer have alleviated much human misery. If present economic trends continue (a big 'if'), the worldwide middle class will expand by 2 billion by 2030"
Today's global economy baffles experts -- corporate executives, bankers, economists -- as much as it puzzles ordinary people. Countries are growing economically more interdependent and politically more nationalistic. This is a combustible combination. The old global economy had few power centers (the United States, Europe, Japan), was defined mainly by trade and was committed to the dollar as the central currency. Its major countries shared democratic values and alliances. Today's global economy has many power centers (including China, Saudi Arabia and Russia), is also defined by finance and is exploring currency alternatives to the dollar. Major trading nations now lack common political values and alliances.
It is no more possible to undo globalization than it was possible, in the 19th century, to undo the Industrial Revolution. But our understanding of international markets, shaped by impersonal economic forces and explicit political decisions, is poor. Countries try to maximize their advantages rather than make the system work for everyone. Considering how much could go wrong, the record is so far remarkably favorable. Alas, that's no guarantee for the future.
Then there is David Ignatius's Bailing Hard and Getting Soaked:
"Another chapter of this slow-motion financial crackup is probably ahead. Eugene Ludwig, a former comptroller of the currency, says we're 'perhaps only 30 percent to 40 percent through the trough.'
Next up are the banks. All you have to do is look at the numbers: As of Monday, Wachovia's stock had fallen over the past year by 81 percent, Citigroup's by 71 percent and SunTrust's by 69 percent. And the stock of Washington Mutual, the nation's largest savings and loan, had tumbled 92 percent."
A new financial architecture is being built this year, but it's a jury-rigged structure with new wings added every time there's an imminent catastrophe. The financial disasters of the 1930s led to a regulatory framework that helped safeguard American prosperity for 50 years. This time around, we have a pell-mell fire brigade. Treasury and the Fed hose the financial markets with liquidity every time there's a new burst of flame, and, as a result, the system is beginning to get soggy.
So before this goes any further, let's think of some principles that should guide the government as it makes promises in taxpayers' names.
The starting point is that this corporate socialism (even the Wall Street Journal editorial page is calling it that) should promote fairness, transparency and market stability. Under the system that has been coming apart this year, employees and stockholders got the upside, while taxpayers got the downside. That's wrong.
Congress is already calling for more regulation, but, if it's not well planned, that could just make things worse. Fannie and Freddie had their own special regulator, the Office of Federal Housing Enterprise Oversight. It conducted lots of audits and studies over the past few years, but it couldn't stop many of the risky practices on Fannie's and Freddie's books. And when it did identify real problems, it was often rebuffed by Congress. The Sarbanes-Oxley reforms, enacted after the Enron scandal, created cumbersome paperwork but did nothing to check this crisis.