A Great Lie?

Politicians have often felt the need to reassure the citizenry in times of trouble, regardless of their leadership capabilities or knowledge of what is really going on. Usually, they make pronouncements along the lines of: "remain calm"; "the fundamentals are strong"; "the situation is only temporary"; "everything is under control"; and, "things are better than they seem."

History suggests, however, that such vapid reassurances often mean that it is exactly the wrong time to be complacent. Instead, anyone who is in a position to do so should take immediate action, because those who are first out the door are likely to suffer the least for it in the long run. In that light, a Wall Street Journal report that "Bush Aims to Pacify Investors, Touts Economy" should give Americans cause for concern.

President Bush shrugged off concerns about stock-market turmoil, saying Wall Street is adjusting to a flood of liquidity and is beginning to "readjust its assessment of risk."

Mr. Bush, seeking to reassure jittery investors who have watched the market gyrate wildly, said the volatility is natural but the economy is strong and there is enough liquidity to absorb the ups and downs.

"If markets are given a chance, they will adjust in a way that is a necessary reaction to a flood of liquidity that came into the market over the last couple of years," the president said during a briefing with reporters at the Treasury Department.

Investors have been spooked as they try to discern whether a shakeout in the market for risky mortgages will lead to credit tightening throughout the economy. The flood of credit to which Mr. Bush was referring fueled a boom on Wall Street, providing loans for homeowners, including some with poor finances, and sparking a wave of corporate takeovers financed with debt. There is concern that a tightening in lending standards could hurt the broader economy.

Asked whether he was concerned that the shakeout could spread, Mr. Bush said it "all depends on if you're a glass-half-full or a glass-half-empty kind of guy." He said the U.S. economy is strong and that Wall Street will "look at the fundamentals of the economy," such as low unemployment and low inflation. He added that the correction in the housing market appeared to be heading for a "soft landing."

He also dismissed a proposal by some Democratic lawmakers to allow Fannie Mae and Freddie Mac to increase the amount of mortgages and related securities they can hold as a way of ensuring there's enough money to fund home loans. Mr. Bush said he'd "rather see their role reformed" before allowing them to expand their investment portfolios. The Bush administration has long argued that Fannie and Freddie's portfolios should be limited.

Mr. Bush's comments came after a meeting with his economic advisers and a speech in which he said Americans are benefiting from a strong economy in the form of low unemployment and an increase in real wages. Mr. Bush fielded economic questions for about 45 minutes, despite the presence of Treasury Secretary Henry Paulson and Edward Lazear, chairman of the Council of Economic Advisers.

Mr. Bush dismissed recent polls showing that U.S. citizens are feeling sour about the economy. A recent Wall Street Journal/NBC News poll2 showed that more than two-thirds of U.S. citizens believe the U.S. economy is either in recession now or will be in the next year.

He said he understands "there's disquiet out there" but attributed much of the economic anxiety to concerns about the war in Iraq. "I happen to believe the war has clouded a lot of peoples' sense of optimism."

Separately, Mr. Bush said he is considering proposing legislative changes to the U.S. corporate-tax code because the current system "makes us less competitive" with other countries. Such a proposal could include lowering the 35% corporate rate, which many executives say is too high and provides a disincentive to do business in the U.S.

"We may be able to devise a simplification that will enable us to have a tax code that's more competitive and that doesn't decrease revenue to the Treasury," Mr. Bush said. However, he said it would be a tough sell on Capitol Hill, where Democrats are in control. Indeed, the suggestions of Mr. Bush's own tax-reform commission went nowhere, even though Republicans were in control of Congress at the time.

Failing that, Mr. Bush can always try uttering the well-known phrase: "we're from the government, and we're here to help you." No doubt that will do the trick, right?

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The Bush-league economy
By Andrew Leonard at Salon

Does the president even know about the mortgage mess or the credit crunch?

http://www.salon.com/tech/htww/2007/08/08/bush_league/index.html

President Bush made some "remarks" on the economy after visiting the Treasury Department on Wednesday. He reiterated his belief that keeping taxes low is the best medicine for a strong America, and he pledged to use his veto powers to thwart Democrats who, he said, "want to increase taxes and turn them into additional government programs."

And that, really was it. The President defended his policy of tax cuts, bashed the Democrats a few times, and said "thank you very much."

OK, it's not as if we expected the President to come out all gloomy-doomy and lecture Americans on the dangers of growing income inequality and unregulated hedge funds. We are also prepared to concede that by many standard measures, the U.S. economy is far from crisis status: unemployment is low, GDP growth figures for the last quarter were decent, inflation isn't too bad, etc. It's the job of the opposition party to point out all the holes in those statistics; no one expects the sitting president to talk his own economy down.

But there are some things that are actually going on in the economy. Perhaps you've heard of the complete meltdown in the mortgage lending and home-building sectors? There's been some talk in the newspapers about it. Relatedly, I've noticed some buzz about something called a "credit crunch" on Wall Street. Seems that borrowing billions of dollars is a lot harder than it used to be. And some people are worried that the worst is yet to come.

President Bush did not mention the words "mortgage" or "credit" once. He did not indicate in any way that anything was going on in the U.S. economy right now that might merit concern by anyone.

Color me baffled. How does this serve the White House, in terms of tactics? It would be very easy to appear smart about these issues without making any concessions whatsoever to doom-mongering by political opponents. With respect to the credit crunch, he could note that there is some turmoil, but calmly express his faith in the workings of the free market by declaring that what are we seeing right now is a natural pendulum swing: a "repricing of risk" that is a normal and expected counter-reaction to years extraordinary liquidity. He could say something like, "In consultation with the Secretary of the Treasury and the Chairman of the Federal Reserve Bank, we are carefully monitoring the situation, but see no cause for aggressive government intervention at the current time."

As for the mortgage mess, would it be too hard to express compassion for the Americans who are facing foreclosure, while simultaneously noting that the mortgage lenders going bankrupt right now are paying a justifiable price for making too many risky loans?

Hillary Clinton's speech Tuesday addressing the mortgage lending mess was obviously motivated by a politically driven desire to capitalize on a perceived weakness in the U.S. economy. To hear her express support for helping citizens escape foreclosure was as unexceptional as hearing Bush support tax cuts. But her speech had the distinct advantage of actually demonstrating a clear connection to the here and now, by confronting a topic that is in the headlines every day and that millions and millions of Americans care about.

Listening to George Bush talk about "the economy" you could imagine he didn't even know there was a housing bust or a credit crunch. I'm almost prepared to believe that of him, but certainly not of his advisers or speech-writers. They made a strategic decision to pretend that there's nothing going on worth "remarking" on. They're wrong.