Michael Giberson
The recent "first rough draft of history" will need some editing to smooth out the narrative.
Pity the poor newspaper reporters and headline writers who daily examine stock market movements and then try to write an account of what it all means.
Last Tuesday, the Wall Street Journal featured on the front page: "Bailout Plan Rejected, Markets Plunge, Forcing New Scramble to Solve Crisis."
WASHINGTON -- The House of Representatives defeated the White House's historic $700 billion financial-rescue package -- a stunning turn of events that sent the stock market into a tailspin and added to concerns that the U.S. faces a prolonged recession if the legislation isn't revived....
The 228-205 vote, which defied a full-court press from the president and the Treasury secretary, marked a dark moment in a month that has shaken the financial system to its core and forced the government to take a host of ad hoc measures to shore up confidence.
That was then, this is now. On Friday the House passed the 'sweetened' version of the bill, and the markets fell some more. Today, the WSJ: "Markets Fall on Doubts Rescues Will Succeed."
The global financial crisis has taken a perilous turn: As government efforts to tame it grow more aggressive, markets are becoming less confident those efforts will succeed.
On Monday, the Federal Reserve and European governments stepped up relief efforts, above and beyond the $700 billion rescue package approved by the Congress last week. But markets around the world responded with a massive vote of no confidence. European stocks saw their biggest drop in at least 20 years, and the Dow Jones Industrial Average dropped below the 10000 mark, a stark sign that the crisis may be outpacing policy makers' ability to contain it.
Confidence will likely wait until the root cause of the problem is addressed and resolved. So far, all government has done is "paper over" the problem.
I suspect the markets fear that, since the root cause appears to lie in federal pressure to loan money to people who had poor credit histories and limited ability to repay, reinforced by community activist organizations which threatened to interfere with bank operations, the root cause will not be seriously addressed and resolved.