National Commentary

Nicholas F. Benton: Panic Overtakes Recession Fears

The operative word this week was not “recession,” but “panic.” It even made it into the banner headline of the Washington Post. A “cat crossed your grave” shudder swept over the planet at the beginning of the week, sending markets reeling and investors running and screaming in the streets from India to Dubai, to London.

Who knows if it was a one-time thing, or like a mild earthquake, a mere precursor to the Big One?

What it did show was how quickly things can get totally out of hand. All the central bank and related safeguards notwithstanding, at its core the human species remains one big pack, capable of stampeding at the drop of a pin, if only because everyone else does.

Of course, this more likely happens when there are plausible grounds for it, and in the case of this last week, everyone knows about the underlying instabilities in the U.S. economy, caused by a combination of an orgy of unscrupulous mortgage lending, the inevitable deflation of an overly bloated housing valuation bubble, high energy prices and a low dollar.

Surrounding the three-day Martin Luther King, Jr. holiday weekend was abundant evidence of panicking in high places in the U.S. Rather than waiting for his upcoming State of the Union message, a nervous President Bush jumped onto the airwaves Friday to announce his call for an unprecedented $150 billion infusion of cash into consumer pocketbooks.

Then, two hours before the New York Stock Exchange opened on Tuesday morning, the panicky Federal Reserve announced an extraordinary 0.75% cut in its rate. The moves may have averted a far worse market plunge on Tuesday, but the trend remained sharply downward. Only an announced $15 billion bailout of highly-vulnerable mortgage insurers late yesterday began to turn the market around, at least momentarily.

This was after memos circulated around U.S. financial circles yesterday morning, suggesting that Fed Chairman Ben Bernacke feels the economy actually is in far worse shape than he indicated in his Congressional testimony last week.

While everyone knew that the second shoe to fall in the still unfolding subprime mortgage crisis was the mortgage insurers market, potentially far more explosive than anything experienced so far, yesterday’s suggestion of an infusion may also bring only temporary relief.

In the midst of all of this pandemonium, it can’t go unnoticed that, amazingly, all three of the major TV network Sunday morning blab shows, supposedly dedicated to news and relevancy, completely ignored the whole thing.

ABC’s This Week, NBC’s Meet the Press and CBS’ Face the Nation made nary a mention of the dire economic events that had been building up since January’s first trading day. In an astonishing display of negligence and almost immoral journalistic laziness, they all reverted to the usual speculative blather and gossip about presidential primary ups and downs.

The only thing that made these displays of irrelevance and sloth even more contemptible was their on-going, sanctioned masking of partisan political operatives as ostensibly independent journalists.

One Sunday morning show touched on the market crisis beyond sound bites from some of the presidential candidates. On CNN’s Late Edition, Wolf Blitzer hosted economic specialists Gene Sperling, advising Sen. Hillary Clinton, and Vin Weber, advising Gov. Mitt Romney, in a segment on his show.

All that notwithstanding, few are confident that Bush’s cash infusion will do much. The mortgage and credit crunch facing millions of Americans won’t be fixed by a few hundred bucks. Nor will Fed actions help much. While they lower interest rates, new tighter credit conditions make home refinancing untenable for most, including the legions that face explosive adjustable rate resets this year.

Of all the recovery plans so far, only Sen. Clinton’s calls for a five year moratorium on mortgage rate resets at least acknowledges the magnitude of the crisis. The banks won’t like it, but they’d like millions of foreclosures even less.