A crisis of trust too
The U.S. is no stranger to financial panics. The destructive convulsion through which we now are passing is the ninth since 1819, but it may be the first in which the public’s loss of faith in banking and finance was exacerbated by a simultaneous collapse of confidence in both government and the news media.
There’s no need to belabor here the ingenious forms of folly that led the “smart guys” on Wall Street to believe they could eliminate risk by making it invisible. What are worth considering are the non-economic reasons we’ve slid further into panic, despite the Bush administration’s unprecedented intervention. Beyond the now nearly forgotten $700-billion rescue package, the government’s takeover of Fannie Mae, Freddie Mac and AIG already has made Washington the nation’s mortgage lender and insurer of last resort. Every day seems to bring a new, more drastic proposed remedy -- including partial nationalization of the banking industry.
If the Federal Reserve opens its discount window any wider, it will look like the Grand Canyon. But even that vain attempt to pump liquidity into the markets hasn’t persuaded banks to resume anything like regular lending. Meanwhile, millions of investors have fled the stock markets, with the Dow now down 40% from its high point 12 months ago. As of Friday, investors in the U.S. markets alone had lost a staggering $8.4 trillion in the last year. Toss in the losses in global markets -- and the potential costs of remedies already undertaken by European governments -- and the worldwide losses boggle the imagination.
President Bush now makes what seems like a daily “don’t panic” speech in the Rose Garden. “The anxiety is understandable,” he said Friday. “Anxiety can feed anxiety, and that can make it hard to see all that’s being done to solve the problem.”
But fear feeding on itself -- though there is some of that -- is not all this is. We’re witnessing a global vote of no-confidence in the Bush administration. Americans have become almost inured to the White House’s habits of deceit over the last seven years. Very simply put, there are millions of Americans who wonder why a government that lied to them about Iraq, torture, civil liberties and more wouldn’t also deceive them about what’s happening to their 401(k)s. Lard onto that a succession of scandals involving the old-fashioned venality of congressmen from both sides of the aisle. Public trust is in shorter supply than commercial paper.
Beyond the question of the administration’s veracity is the issue of its competence. There’s general agreement -- and abundant documentary evidence -- that the wars in Afghanistan and Iraq have been abominably overseen by the White House and Defense Department. A tenuous stability prevails in Iraq because of our military’s skill. The situation in Afghanistan continues to deteriorate because the administration has ignored for years the pleas of our professional soldiers, who have been forced to watch victory slide toward quagmire.
On the domestic front, it was the Bush administration’s Securities and Exchange Commission that thought it would be a good idea to let Wall Street’s financial institutions regulate themselves. We all can gauge how well placed that trust was by the number of humiliated ex-CEOs who have declined their multimillion-dollar severance packages out of a sense of shame over what their failures did to individual stockholders.
At the same time, a significant portion of the public has become suspicious of the media’s financial news. In part, that is part of a general assault on journalism underway for years, fueled by intense partisans of both left and right who claim the media are biased against their ideologies. Those attacks have taken a toll, which is why the term “mainstream media” is now an epithet in many quarters. (If you doubt it, listen to the crowd at any McCain-Palin rally from the last week.)
There’s another, less ephemeral reason for public dissatisfaction with the news media right now: We did nothing to warn people that any of this was coming. The number of print and broadcast reporters assigned to cover business, economics and finance has plunged in recent years as one news outlet after another has slashed its staff. Many newspapers have given up on stand-alone business sections altogether.
It may be that the forces that drove this crisis were so arcane and the trade in these obscure derivatives so hidden from view that no journalist would have sounded an appropriate alarm. Perhaps, but the chances of exposure surely increase when more people are looking.
When this panic passes -- and it will, as all those before have -- one thing we’ll have learned is that in this new globalized and wired economy, the public needs to believe in its government and media, as well as the financial system.
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