The first sound was a muffled rat-a-tat as the rise in housing prices in the first half of the millennium's new decade triggered concern about a bubble. The drum roll became more menacing in 2007 as housing prices plunged in many areas and foreclosures rose. When problems arose in credit markets, polychords rose above the drums.
This year the music became deeply ominous as signs grew of weaknesses of the mortgage system and overseas involvement in U.S. credit problems. Clashes of cymbals in March signified episodes of panic. A Federal Reserve flute, IMF piccolo and Treasury oboe tried different tenuous melodies that retreated before stronger drum rolls last month and renewed clashes of cymbals. Congressional stringed instruments sometimes supported the oboe and flute, sometimes added distracting new melodies and disharmonies.
The music was unresolved until last week's strong trumpet notes from an unexpected solo player, British Prime Minister Gordon Brown. His melody cuts through with clarity: "Buy up the shares today. Sell them for more, tomorrow!"
Financial panics are to be cured by government deposit guarantees and purchases of shares of failing banks. When the government sells back the shares, taxpayers get their money back. The FDIC has been moving in this direction by subsidizing the purchase of a failing bank by a better-capitalized one.
The new trumpet notes were immediately picked up by the G7 brass. The oboe and flute are joining in, and the strings are attached. The European stock markets have bounced back well today and the DJIA also opened strong.
The new consensus is not a panacea. Regulatory issues still need to be addressed. A recession has surely not been averted.
But once the ideological barrier to government ownership of bank shares is pierced, the merits of the plan are obvious. There is poetic justice in government takeover of disasters emanating from over-the-top free-marketeers. A good day for the announcement that Paul Krugman will be awarded the Nobel Prize in Economics in December. The old Concert of Europe died in 1914. Are we seeing the birth of a new World Concert?