Letter from America: Wall Street's crisis

'Fear of fear itself' keys Wall Street's worries.

By HILARY LEILA KRIEGER, WASHINGTON
March 23, 2008 00:47
3 minute read.
The Jerusalem Post

wall street us flag 88 2. (photo credit: Bloomberg)

Once again the American financial nerve center, those teeming square blocks of lower Manhattan, have been jarred by an upheaval that augurs anxiety, soul-searching and outright fear. With snowballing home foreclosures, soaring oil prices, growing inflation and an ever-weakening dollar, the US Federal Reserve last week again slashed rates and orchestrated a bail-out of major brokerage house Bear Stearns, a move so unusual that it might have scared - more than reassured - investors. Amid the neon signs of recession, with credit and currency crises mounting, an economic meltdown looms. After the World Trade Center attacks of September 11, 2001, those searching for a historical comparison seized on Japan's bombing of Pearl Harbor. Now financial sages such as former Federal Reserve chairman Alan Greenspan are again referencing WWII. "The current financial crisis in the US is likely to be judged in retrospect as the most wrenching since the end of the Second World War," he said at the beginning of the week. And seeking solace from that era, Americans have been turning to Franklin D. Roosevelt, who led a country out of Depression, fought back the Nazis and restored America's belief in itself. FDR's famous quote - "The only thing we have to fear is fear itself" - has become a national Greek chorus in recent days, a reference not only to the stewardship and oratory of a longed-for leader, but a reminder that an economic crash hinges on psychology, on a crisis in confidence among lenders and spenders. America's most recent fear of fear, of course, has been its encounter with terrorism, a concept whose very name underscores that phenomenon. Though the US economy hasn't plunged into the abyss quite yet, it is teetering on the edge, and that teetering comes while America has yet to find secure footing after its encounter with terrorism. In fact, the fallout from the War on Terror has caused a crisis of confidence not just in American security but in American government and leadership, which helps this new crisis to appear bleaker. US economic woes are blamed in part on this fallout - war debt, oil, over-reliance on problematic Middle East allies - so they are more intense. They are also more likely to lead to despair. America has had the luxury of blaming terrorism on what's happening out there, and at times indulging in the fantasy that it could just turn its back on Iran, Iraq, even Europe, and be done with it. But there is no ignoring the international economy's recent delivery at America's doorstep now, particularly when the packaging is unwrapped to reveal a Made in America label - corrupt mortgage lending, lax government regulation, a lack of prudence on the part of local consumers. This crisis is also more personal. On Monday, CNN's "quick poll" feature replaced questions on Iraq troop withdrawals and Iran's nuclear program with questions on the economy. Viewers were asked what they were most concerned about. The multiple choice answers offered: my savings; my debt; my house; my job. According to CNN, the economy has been pushed to the top of the pile of issues confronting American voters. A recent survey by the news network found the economy to be the top concern, and has taken to labeling the economy "Issue Number One" in its segment promos. So now, even global issues are viewed through an economic lens. Another CNN poll found that seven in 10 Americans think the cost of the war in Iraq is hurting the economy. US President George W. Bush, in dismissing criticism of his decision to invade five years ago, said Wednesday, "War critics can no longer credibly argue that we're losing in Iraq - so now they argue the war costs too much." As it happens, and worth it or not, war costs have played a role in the economic tailspin, as they have helped push oil - and therefore goods - to record prices, while necessitating huge loans that have hurt America's financial health. And the international wariness over the American economy that's been engendered can contribute to the problem: less desire to own dollars, more foreign ownership of American assets, less willingness to loan the US needed money. But that doesn't mean the international community stands to gain much; a bad US economy is bad for everyone. And that means that whether it wants to or not, the US has to work with overseas partners to weather this crisis. The recent responses of the Federal Reserve have been aimed at global markets as well as local consumers. Americans are once again learning that they have no back to turn when it comes to the wider world. And in case anyone needed a reminder, when disaster hits Wall Street, the reality is that we are all Americans.


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