Archive for the ‘recession’ Tag

Putting lipstick on a bear

The Dow Jones average is swimming down around 6,800 today, hitting a new 12-year low. If in a basic sense the stock market represents a rough overall valuation of the U.S. economy, then the U.S. economy is now worth less than it was in April of 1997. Whether that’s realistic I have no idea, but either way it seems a rather stunning measure.

In recent days, by way of working on a forthcoming magazine article, I’ve been taking in a sizable dose of CNBC, the ubiquitous financial news network. The channel is watched obsessively by most on Wall Street (I saw this firsthand on a recent reporting trip to the New York Stock Exchange and surrounds), and its constant chatter can be found in airport lounges, urban corner stores and no doubt the many living rooms of America’s investor class. The personalities hosting CNBC’s various shows do produce substantive reporting on the financial world daily, but much of the air time is filled with infotainment, emphasis on tainment. In addition to the usual stream of industry banter and speculative investing ideas, these days there’s no shortage of finger-pointing commentary about the policy maneuvers of the Obama administration.

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Still, you can’t run a popular cable network on a steady drip of downer, so today the hosts of CNBC’s “Power Lunch” have been trying their darn best to dress up another ugly day on Wall Street. Courtesy of their “smart strategies special,” cue the segment: Three ways to make money in value stocks!

“Apparently there are more value stocks out there than ever,” announces Sue Herera, preparing to welcome two money managers who’ll offer favored picks.

“Value stocks are being created right now,” declares a smiling Bill Griffith, glancing sidelong at the sinking averages.

Good luck, folks. As James Grant noted in a sobering roundup of financial experts in yesterday’s Times, the truth about vicious bear markets is that they end when investors finally give up hope. “Hope sustains life,” Grant writes, “but misplaced hope prolongs recessions.”

A reality check for the recovery plan haters

It doesn’t seem particularly out of the ordinary when Rush Limbaugh looks at Obama’s economic recovery plan and reiterates his desire to see the president fail. Or when Gov. Bobby Jindal, purportedly the rising star of the Republican Party, argues that federal spending is a bad way to pull the nation back from the brink. But these are no ordinary times — faced with the greatest domestic crisis in modern memory, at what point does hard-line politics make for sheer lunacy?

While reporting for a forthcoming magazine piece, I spoke recently with economist Dean Baker about some of the political right’s machinations regarding the economic meltdown.

“One thing that was amazing to me was people blaming the housing crisis on the Community Reinvestment Act. It makes no sense whatsoever,” said Baker, who is co-director of the Center for Economic and Policy Research in Washington. “The idea was widely circulated, so there are a lot of people out there who believe that what lies at the center of the crisis is that the government forced banks to make loans to poor people and minorities. That’s absurd, and the media should’ve been doing more to point that out.”

A few did, at least: Businessweek’s Aaron Pressman explained last fall why the 1977 federal law, requiring banks to lend in low-income neighborhoods where they take deposits, had little to do with the insidious subprime mortgages that inflated the housing bubble. (Pressman further pointed out that the Bush government in fact weakened the CRA, while enabling Wall Street to gorge on dubious derivatives and absurd leverage.) But the blame game holds powerful emotional appeal in dark days, and the warriors of the right soldier on in earnest. hannityfox Fox News’ Sean Hannity keeps repeating a debunked GOP talking point that the freshly signed $787 billion recovery package contains a $30 million provision to save a salt marsh mouse in San Francisco. Simply erroneous, as Congressman Joe Sestak pointed out this week on Hannity’s own show. (Here’s the video.)

Baker worries that partisan warfare will squelch political appetite for additional stimulus — which he believes will be necessary going forward. Obama had to fight hard just to get the first big spending plan through Congress. “Nobody wants to waste money,” Baker said, pointing out that job creation and a particular project’s usefulness are different issues. “But if the alternative is that people think we’re somehow going to benefit by not spending money, then they’re just on another planet.” Without more government spending to come, he said, “we could see this downward spiral continue for some time.”

Nothing to fear but everything itself?

With the stock market sitting at half the level it did a decade ago, and with new surveys showing carnage in consumer confidence and housing, I’m struck by the saturated language of the national nightmare. (It’s not just the apocalyptic headlines driving us to despair.) This story from the Associated Press today gathers the poetry of the pain — after its lead sentence announcing that American confidence went into “free fall” in February, the relatively short dispatch uses each of the following terms at least twice:

fear (2)homer_thescream
decline (2)
plummet (2)
plunge (2)
collapse (2)
severe (2)
slash (2)
shrinking (2)
battered (2)
suffer (3)
drop (4)
sink/sank (4)
worried (4)
low (6)

Superlative phrases in the story include “massive job cuts,” “driven to their lowest level ever” (consumer expectations) and “the largest drop in its 21-year history” (a national home price index).

Recently a friend sent me an email wondering why President Obama hasn’t done more to talk up confidence as he’s traveled around promoting his economic recovery plan. The answer probably lies most in the calculus of Capitol Hill, and the political pressure apparently needed to pass his legislative agenda. There’s also Obama’s admirable position that he won’t sugarcoat the truth about our troubles the way the administration before him did to such disastrous effect.

But it’s a daunting balancing act with perception at this point. You don’t have to be an economist to sense how the downward spiral of fear could itself become deeply damaging. (If it hasn’t already — as Robert Shiller warned in a recent column, a Great Depression narrative “could easily end up as a self-fulfilling prophecy.”) And Obama’s political opponents increasingly are able to agitate using raw emotional appeal: Last night CNN’s in-house ideologue Lou Dobbs hammered at Obama’s “fear mongering” and accused him of repeatedly talking down the markets and economy. In the New York Times today David Brooks feigns sympathy for the president while suggesting that Team Obama is in way over its head. (“I hope the president succeeds even though he probably won’t!” is the message.)

Many will be watching intently tonight when Obama addresses a joint session of Congress for the first time. The only positive polling in sight shows that he’s still got the thumbs-up on job approval from a decisive majority of the public. It’s a remarkable measure of confidence floating on a tide of ugly numbers — Americans believe Obama will sail us in the right direction, even with no horizon in view.