Fearmongering

Anthony Randazzo points out that most of the government's intervention in the market has served to prolong the misery, yet not to actually improve the situation:

At this point, the depth of the recession has largely been created by the panic started by former Treasury Secretary Henry Paulson and President George W. Bush. "If money isn't loosened up, this sucker could go down," President Bush said about the economy as he urged for bailouts last September.

Dire warnings of "catastrophe" or "before its too late" without any clear definition of what those concepts really mean are similar to, and no less troubling than, Mafioso scare tactics. It is this fear that has been driving the government to quick, impulsive action that is only worsening the problem.

Clearly fear and panic didn't start the recession. There were system-wide failures due to a toxic combination of excessive growth optimism, a belief the boom would go on forever, a lack of healthy fear of losses, incompetency, and coercive regulations. But as Fidelity Investments executive Edward Johnson said this week, "We can only hope that the government's cure doesn't further sicken the patient."

Looking back, most legislators regret passing their first cure — the Troubled Asset Relief Program (TARP) bill — as fast as they did. There wasn't a clear and present danger at the time — just Secretary Paulson saying if we didn't give him unlimited powers the sky would fall in and economy would collapse. No one understood what Paulson's forecasts of catastrophe would result in, but they didn't want to find out. Terrified, 'doing nothing' was not presented as an option and $700 billion was approved to buy up toxic debt.

Ironically, after a month of discussion the Treasury decided that buying troubled assets wouldn't work after all and decided to go with capital injections instead. But this all took place many weeks after TARP was passed, and the world hadn't ended. So much for the need for speed that was used to push the bailout through.

It's gotten so bad lately that it seems as though every time the markets finish a day in the black, someone from the government has to get up on his hind legs and proclaim another impending disaster (or worse, further government intervention) . . . and the market goes down again the following day.

The economy won't recover until all the malinvestment has been worked out of the system; much of that mistaken spending was as a result of governments trying to prolong "the good times". Stability is essential to long-term planning for any business . . . and in today's climate only a fool would assume that the current situation will stabilize in a hurry. No stability means that no sensible business is going to take any risks they don't absolutely have to take — and building new facilities and hiring new staff count as risks in this market.

Of course, the cycle isn't complete without mention of the news media: they're geared to report bad news, and there's a plethora of bad news to report at the moment. In an ironic twist, this is the first time that economic turmoil has seriously threatened the jobs of newsmedia workers in all areas: at least in the living memory of most current reporters and editors. This only encourages further negative connotations to every piece of economic news they report.

It's like a reworked version of the old joke about a recession is where your neighbours lose their jobs and a depression is when economists lose their jobs. From the media point of view, this is an economic apocalypse because it's directly affecting them and their fellow media types.