More Gloom, Please

The economic and financial crises are even worse than Obama admits.

By Daniel Gross
Posted Tuesday, Feb. 10, 2009, at 3:38 PM ET

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In the past week, the stock market reacted erratically to two huge government actions intended to shore up economic confidence. As this five-day chart of the Dow Jones industrial average shows, stocks rallied last Thursday and Friday as a deal over fiscal stimulus crystallized. The mere anticipation of the passage of an $800 billion-plus stimulus package was enough to get people whistling "Happy Days Are Here Again." But on Tuesday, stocks surrendered most of those gains after Treasury Secretary Tim Geithner laid out the latest plan to stabilize the faltering financial industry.

What accounts for bipolar response? These were twin, aggressive efforts to deal with the woes affecting the whole economy and the pathetic financial sector. Why would Geithner's Treasury plan worry Wall Street while the stimulus plan didn't? As a public speaker, Geithner is no Obama. Geithner could learn to be more upbeat, but that wouldn't be useful. Investors have lost faith in the financial system precisely because policymakers and executives engaged in the classic post-bubble reaction of promising a swift return to profitability. (In my forthcoming e-book, Dumb Money, I dub the realization that the titans of finance were a bunch of clueless oafs "The Slow Unmasking.")