Last week’s prime time speech by Pres. Bush was hardly reassuring. He was scared, shrill and stiff, almost the opposite of FDR as he spoke gloomily of the economic risks arising from the subprime mortgage crisis. If the point is to provide comfort and stability to investors and financial markets — and what else can the government really do? — it failed wildly.
Bob Herbert writes in When Madmen Reign [NYTimes.com] that
[w]hen President Bush went on television last week to drum up support for the bailout package, he looked almost dazed, like someone who’d just climbed out of an auto wreck.
But that’s only half the story. By proposing to buy up failed mortgage assets (defaulted loans on real estate properties worth less than the oustanding loan balances) rather than inject capital and liquidity into the market, the government was offering simply to rescue these lenders from their own financial miscalculations. The comfort needed was reassuring depositors that their insured savings are safe and reasuring credit-seeking businesses that the Federal Reserve would ease up on the money supply to support the availability of lending capital.
So instead of reassurance and leadership, we got fear-mongering coupled with a straight-forward bailout, which spooked conservatives into limbo. Coming on the heels of Bear Stearns, Lehman Bros. and AIG, all now defunct and brokered firesales by the US government, investors saw a collapsing house of cards, while market professionals saw a financial policy bereft of new ideas and paralyzed by indecision.
I don’t think the question to be asked in light of yesterday’s Wall Street stock plunge is who caused the bailout plan to fail in the House of Representatives. Instead, it’s why a bailout plan was being peddled in the first place and why no one focused on the psychology of investors and markets. In the 1930s, FDR closed all banks temporarily — a “bank holiday” he called it — to prevent a nationwide run and announced that fear itself was the only risk. Now our leaders cannot even “throw money at the problem,” something legislators have been great at for decades.
There’s a propular cable television series called Madmen on AMC. Reality is even better (worse)!!