Tuesday, October 14, 2008


Brown-Out Beats Blackout

Kinda funny what crises can do for politicians -- and parties.

In the UK, the Labour Party -- in power for the last 11 years -- has been in almost as dire shape as the GOP here in the states. And, as we've all seen, the financial tsunami has thrown John McCain for a complete loop -- plunging him to as much as 10 points behind Barack Obama nationally and Republican candidates with him. Linked to that is that George W. Bush remains at historically low levels of popularity.

If you're in the Labour Party and there is a worldwide financial crisis, guess it helps when your prime minister is the former Chancellor of the Exchequer (the UK version of Secretary of the Treasury) -- and knows what he's doing. In contrast to the Bush-Paulson team that first suffered a humiliating loss in the House of Representatives before finally getting the $700 billion "rescue" package approved, and then engaged in some dithering over whether the money should go toward collecting so-called "toxic assets" or in a different way, Gordon Brown immediately stepped up and made equity purchases in several UK banks.

That is now the model that Paulson is adopting. And with the world following the UK, Brown is not the dead man walking he was just a few weeks ago.
But the financial crisis has been a gift for the sombre Scotsman, who grabbed the opportunity with a set of financial initiatives that have been followed by governments around the world.
While the Bush administration dithered and the European Union's major players were divided, the British leader quickly proposed that governments needed to go beyond simply providing extra liquidity and had to buy directly into banks to restore their balance sheets and their public credibility.
"I am very pleased that a large number of countries across the world, from Australia and New Zealand to Sweden, to the euro area, have moved towards the proposals that seem to me to now be common ground for the way forward," he said last night.
"I see that there are 'similar' announcements in America as well, so that is the basis -- it is really a conclusion that simply the flow of liquidity could not actually deal with the problem unless we got to the root of the fundamental failings in the system."
Of course, Brown is able to take advantage of the parliamentary system that grants flexibility for the calling of elections. Thus, he has time to build back his popularity by coming across as the smart leader in a crisis. Not only does he know the issue, he manages to draw a contrast as the sober "experienced" adult in dealing with an international crisis -- as opposed to his younger charismatic Conservative Party opponent, David Cameron. And, he's going beyond just dealing with the "problem of the day." Instead, he's raising ideas like a new Bretton-Woods pact for the world's leading financial players to craft.

The contrast with what is happening in the US couldn't be stronger. The "experience" line isn't working for John McCain, because the nature of the crisis isn't in his skill set -- in the way it is for Brown. Thus, Obama has been able to appear mature and calm, while McCain as bounced from one tactic to another in trying to deal with the economic and political whirlwind recently unleashed.

Another aspect of this is that, unfortunately, the U.S. is no longer looking like the lead dog in financial affairs. As we noted last week, Iceland is turning to Russia to help bail it out. And now, it's the UK coming up with the main idea to rescue the world financial system.

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