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Are Events in the Saddle?

Why Americans are buying into the idea of a recession.

12:00 AM, May 28, 2008 • By IRWIN M. STELZER
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But a $14 trillion economy can tolerate a good deal of waste and still function quite well, and a new president with a fresh mandate should be able to eliminate the worst excesses if he chooses to do so. Meanwhile, the market and the actions of the Fed have reduced the likelihood that the credit crunch will result in a collapse of the financial system. Investors are buying up the dicey mortgages at a discount, and banks are raising new capital so they can return to the business of lending.

Most important, the credit and oil-price shocks are triggering needed reforms. Mortgage lenders will face new regulations, and banks new capital requirements. Consumers are switching en masse to more fuel-efficient vehicles and to public transportation. And more and more voters are registering to be in a position to let the current crop of politicians know what they think of them come November.

Irwin M. Stelzer is a contributing editor to THE WEEKLY STANDARD, director of economic policy studies at the Hudson Institute, and a columnist for the Sunday Times (London).