economy

The bailout crashed, and so did democracy.

Democracy is not perfect, and one of its many imperfections is that voters tend to be ignorant. I don't mean to be insulting. There are, after all, perfectly rational reasons for this ignorance. In a republic of 300 million, the chances of an individual vote affecting a national outcome are slim, and it makes little sense for the individual voter to invest scarce resources in learning about complicated issues, like health care or foreign policy or, just to pick another subject at random, the economy.

As Lehman Brothers melts down, the economy comes up on the campaign trail.

In times of crisis, financial reportage has a tendency to slip into the apocalyptic style of Old-Testament prophecy. "They shall cast their silver in the streets, and their gold shall be removed: their silver and their gold shall not be able to deliver them in the day of the wrath of the LORD: they shall not satisfy their souls, neither fill their bowels: because it is the stumbling block of their iniquity." Ezekiel could have been writing for a major financial paper during any of half a dozen panics over the last two decades. As it happens, I was doing technology work on a trading floor during the Asian meltdown in 1998, and I heard a young trader ask a grizzled veteran whether this was the worst crisis ever. The older man shrugged.

"They're all the worst ones when they're happening."

This insight has calmed me through several subsequent panics. But when an op-ed in this morning's New York Times called the possibility of an AIG liquidation "as close to an extinction-level event as the financial markets have seen since the Great Depression," it wasn't hyperbole; it was a statement of fact. The world's largest insurer has its tendrils planted in every corner of the financial world, including insuring the remaining solvent financial institutions against defaulting mortgage bonds. A failure would send those institutions scrambling for new cover, while dumping billions of dollars of assets into already depressed markets. This, in turn, would weaken balance sheets, possibly pushing other institutions along the footsteps of Lehman and Merrill Lynch.

The price of oil has stopped climbing -- for now, at least.

Oil prices didn't reach cripplingly high levels because of surging demand in China and other emerging markets. Their growth in consumption was modest and predictable. So what was the main driver?

As House Republicans launch their "Guerrilla Congress" campaign to beat the drilling drum, the question of rising oil prices has become a political issue -- an issue voters now consider more important than Iraq. A number of prominent Democrats point to speculation in the oil market. Republicans, meanwhile, are convinced that the problem lies in our failure to exploit domestic energy resources more aggressively. Hence the Republican call for drilling, drilling, and more drilling, which has been mocked by liberals as a cockamamie ploy that won't solve the problem but will cause environmental despoliation.

Fannie Mae, the government-sponsored lending giant, posted an unexpectedly large $2.2-billion loss in the 2008's first quarter.

How could one be less optimistic than a Wall Street housing analyst? Ask Fannie Mae, which just told analysts they'd strayed a little too far onto the sunny side. Expected to lose 81 cents a share on its gigantic portfolio of mortgages and securities, today the institution announced it had lost $2.57 a share, thanks to plummeting house prices and soaring delinquencies. Markets were taken aback. Fannie Mae, along with brother institution Freddie Mac, buys more than 75% of the mortgages in the United States. When it sneezes, your house gets double pneumonia.

Congress grills pharmaceutical firm Baxter International and the Food and Drug Administration about tainted drugs that killed 81.

For those scared or curious enough to pay attention, this week's hearings offered a jarring look at how globalization is affecting the medicines we take. True, some testimony was predictable: the FDA denied that it could have averted the tragedy with an earlier (and required) inspection of the suspect Chinese factory; Baxter's CEO played the victim card, claiming that his firm's heparin, an anticoagulant, was the target of a deliberate adulteration scheme. (The Chinese government, meanwhile, argued that the faulty ingredients weren't to blame for the deaths.) But the statement of David Nelson, the senior investigator of the committee holding the hearings, sandblasts the varnish off such evasions, especially Baxter's dubious behavior, and is worth a read.

Citigroup posted a $5.1-billion loss and announced 9000 layoffs.

Analysts call it a "kitchen sink quarter." Companies in shell-shocked industries write down everything that even looks like it might go wrong, clearing the balance sheet for future growth. For banking, that quarter was supposed to be the end of last year. Friday's earning report from Citibank, however, indicates that some in the industry might still have faulty plumbing yet to expose. After giant write-downs last quarter, Citibank again announced it needed to revalue its assets sharply downward. The financial giant took massive write-downs across multiple business lines, pushing revenue into negative territory and causing its second consecutive quarterly loss. The bank has now written down almost $40 billion due to the credit crunch.