Today's Papers

Drowned World Tour

It’s a new week, and the bad news keeps getting worse. “The global financial crisis has taken a perilous turn,” declares the Wall Street Journal. Hopes that the massive bailout package approved by Congress last week would give investors some breathing room were quickly dashed as soon as the markets opened. And pretty much the whole world is feeling the pain. Markets in Asia, Europe, and Latin America closed deep in the red yesterday, a pattern that was repeated in the United States. The Dow Jones industrial average plunged 800 points, or 7.7 percent, before rebounding late in the day to close down nearly 370 points, or 3.6 percent. It marked the first time the Dow fell below the 10,000 mark since 2004. USA Todayhelpfully puts it in perspective and points out that the Dow has lost nearly 30 percent since Oct. 9, 2007.

The New York Timesand Washington Post highlight word that the Federal Reserve is considering a plan to buy large amounts of unsecured short-term debt—so-called commercial paper—in an effort to revive the financial system. This “radical new plan” (NYT) would essentially make the Fed “a major funder of a wide range of U.S. businesses facing imminent cash shortages,” explains the Post. While the growing financial crisis is putting pressure on government officials to act, the Los Angeles Timespoints out that if there’s a clear message from yesterday’s worldwide sell-off, it’s that investors are increasingly concerned “that government intervention won’t be enough to stave off a potentially severe global recession.”

Fed and Treasury Department officials were working out details last night of the plan to set up a special fund that would buy short-term commercial paper. The Fed hopes this plan would help credit start flowing again. Of course, the plan would increase the risk that taxpayer dollars would be lost. The WP says it’s likely that any losses would be covered by the Treasury through the new bailout package. But the NYT notes that any attempts to shore up the commercial paper market “could represent an undertaking even broader” than the bailout’s key goal of buying up mortgage-related securities. The NYT also points out that the move could create conflicts of interest for the Fed since it would have to protect the investments it makes with taxpayer money while also worrying about stabilizing the economy. The WSJ says that if the Fed does get involved in trying to ease the strains in the commercial-paper market, interest-rate cuts “look increasingly likely to follow.”

The move would merely be the latest by the Fed, which is deep into “a sometimes makeshift campaign that is rewriting textbooks on central banking,” as the WSJ puts it. Yesterday the Fed said it would begin to pay interest on the reserves that banks keep on deposit with the central bank, which would make it easier for it to keep control over interest rates. The central bank also said it’s expanding, to $900 billion, the funds available to banks under a special short-term loan program. A mere two weeks ago, the Fed had planned to make $150 billion available.

Meanwhile, European governments were working feverishly to avoid the collapse of several major lenders. But despite pledges from government officials that they would work together to ease the financial crisis, a pan-European solution has yet to emerge. One expert tells the WSJ that while economies in Europe are deeply integrated, “national politicians haven’t understood that yet, and they’re acting as if banks still had a nationality, so that some banks are their children and others are not.” While it may have taken a bit longer for European banks to catch the cold, it’s likely that they actually face a more acute problem than their partners in Asia and the United States because they’re “more dependent on the short-term-lending markets,” says the WSJ.

As the financial crisis intensifies, everyone says that a meeting scheduled for later this week of the International Monetary Fund and World Bank will take on a new level of importance as officials are likely to use the gathering as an opportunity to discuss coordinated action to tackle the problem. When stock markets in emerging economies “took one of their biggest collective tumbles in a decade” (NYT) yesterday, it became clear that even countries far from the subprime debacle are vulnerable to the freezing up of the credit markets. And now there’s growing fear that all the signs are pointing toward a worldwide economic recession. The WP notes that the president of the World Bank said the global financial system may have reached a “tipping point.”

“Up to now, it’s been a financial crisis,” writes the WP’s Steven Pearlstein. “This is a meltdown.” Pearlstein says the root cause of the current problems can be summarized as “a set of economic and financial bubbles bursting at roughly the same time.” Since all these bubbles were related, it’s unsurprising that they’re popping at the same time, and now the only way to ease the crisis is “for governments to step in with massive amounts of money.”

Wait, isn’t a massive amount of money exactly what Congress approved last week? Well, yes, but now even $700 billion is starting to look like a drop in the bucket. The NYT’s Joe Nocera says the market was sending a message yesterday that it can’t wait six weeks for the government to start getting toxic securities out of the markets. “In these compressed times, it seems terribly slow,” writes Nocera. “The markets want to know—right now—whether the bailout plan will work.”

In the United States, even investors who used to be optimistic that any recession would be short-lived were ready to throw in the towel. “Recession is unavoidable at this point,” one stock market strategist tells the LAT. “Now it’s just a matter of depth.” More pain is almost certainly on the way for U.S. markets as Bank of America revealed last night that its third-quarter profits fell 68 percent. The company announced it would try to raise $10 billion from investors.

The LAT and USAT point out that while Monday’s stock market action had some of the signs of a capitulation, few think we’re actually there yet. Investors have been waiting for this moment when the panic gets so bad that everyone who was going to sell has sold and stocks have nowhere to go but up. While some say that moment could be close, many think stocks still have a ways to fall.

Knowing about the world’s problems is all well and good, but what does it mean for an individual investor? In a column appropriately titled “Is Now a Good Time to Panic?” the Los Angeles Times’ Tom Petruno tries to take a shot at the question and says there are plenty of signs of capitulation all around us. But while it’s true that bear markets “usually end just when investors are feeling that there is no hope of a recovery,” the current credit crisis is unprecedented so no one can predict when that time will come. That means all an individual investor can do is answer one question: “Between now and however long it takes to resolve the credit mess and the hit it delivers to the economy, how much more pain can you handle?”

Markets may be plunging, but that doesn’t mean the presidential campaigns are putting the brakes on their plans to go negative in the last month before voters head to the polls. Key question: Is anyone listening? The NYT and LAT both front looks at how the two candidates, who only a few months ago were denouncing politics as usual, have now made it clear that they’re sticking to the old formula. As was previewed over the weekend, John McCain and Sarah Palin have been raising questions about Barack Obama’s past and his relationships as a way to raise doubts in voters’ minds about the Democrat’s character.

In order to raise questions about Obama’s association with William Ayers, Palin has frequently cited a NYT article that was published on Saturday. Today, the paper all but calls the Alaska governor a liar by noting that “she has sidestepped its conclusion that the two men did not appear to be close and that Mr. Obama had never expressed sympathy for the radical views and actions of Mr. Ayers.” By writing these words, couldn’t the NYT’s Adam Nagourney be seen as questioning his paper’s editorial decisions? After all, papers aren’t usually in the business of putting no-news stories on the front-page, above-the-fold, are they? Oh wait, maybe they are.

“Who is the real Barack Obama?” McCain asked yesterday at a rally. McCain and Palin have caused raised eyebrows among political analysts by directly talking about the issue themselves “in unusually strident terms,” as the LAT puts it. The move, of course, risks turning off undecided voters who simply may not care about details from Obama’s past during an economic crisis. Still, Obama’s campaign made it clear that it’s ready to hit back by reminding voters about McCain’s association with the Keating Five savings-and-loan scandal while also raising questions about the Republican nominee’s temperament.

It’s not surprising that McCain’s campaign would want to change the subject as the candidates prepare to face off tonight in what will be the second of their three scheduled debates. The Post publishes the results of a new poll that gives Obama a six-percentage-point lead in Ohio among likely voters. The figures could easily change as about 2-in-10 voters are “movable,” but Obama has an edge in handling the economy, which is described as the top issue by more than half of all voters. No Republican has ever been elected president without Ohio.

Knowing that the Republicans are attempting to distract voters away from the big issues of the day, “are we in the media going to aid and abet the McCain campaign’s obvious ploy?” asks the WP’s Eugene Robinson. Even if reporters point out that the allegations McCain’s campaign makes are false, “writing about them at all gives them wider circulation.” Journalists “have a duty to avoid being turned into instruments of mass distraction” and must press for answers about the issues that really matter. “The McCain campaign has made clear that it wants to change the subject,” writes Robinson. “We can, and should, change it back.”