That commitment made all the difference. World markets soared and the Dow ended the week just 34 points down.
What is the underlying lesson of all this? Three critical points.
First, as the saying goes, when the US gets a cold, the world gets a fever. What happens in this country matters. Our economy is linked in major ways to so many other economies, that problems here quickly spread to the global market.
Second, the mortgage industry as a whole has shown itself to be one of the most important pillars of our economy. After 9/11, when other parts of the economy tanked, the overall economy remained firm because the housing industry continued to do well. Problems in the mortgage industry, on the other hand, almost caused a meltdown as horrendous as the Great Depression! For most people, their greatest investment is their home. The lesson here, then, is when the housing market gets a cold, the rest of the economy gets a fever.
Finally, market perception is reality. Overall, the economy is still sound. Yet the perception that Wall Street was in a meltdown caused investors all over the world to panic. It was the perception that events were spinning out of control that triggered a collapse in global markets this week.
Even Congress was showing signs of panic. Harry Reid, the Senate’s Majority Leader was quoted in the Washington Post saying he didn’t know what to do.
So the Bush Administration stepped up and let it be known they were taking charge and would support the markets. The response was a restoration of confidence and a restoration of business as usual.
People wanted to know that someone was going to “take charge.” Once that message had been conveyed, things stabilized.
This, of course, is the tightrope that government walks. To allow the markets to work in their normal efficient and free manner, but to be able to step in and under gird the system in times of trouble.
The balance is a delicate one because both the markets and the government represent the interests of the people. The government must protect the people while the markets protect the people’s investments. Government gives us stability in the present while investments are there for our future.
So the challenge is for the federal government to protect the interests of the people without interfering too much in the interests of the people. I give the Bush Administration credit for doing what they absolutely had to do.
At the same time, some of the panic might have been averted if President Bush had begun addressing the nation a week ago, and continued throughout the week. Yes, President Clinton loved the sound of his own voice, but he also understood the need to communicate regularly with Americans. He would have held daily press conferences so that people understood that he was paying attention to the situation. That alone would have helped.
Did the Bush Administration avert a “financial Katrina”? My gut tells me yes. We’ll have to wait and watch to know for sure.
Reported by Blown Mortgage
