Is the stock market trying to tell us something? It seems like every time Treasury Secretary Henry Paulson goes on TV, stock prices drop.
I can see why. Businesses would be reckless if they made investments that might lead to recovery when they have no idea day-to-day what Paulson or his successor might come up with next.
By my count, Paulson is now on his third plan for how to spend the pile of cash Congress gave him.
First he was going to buy "toxic" mortgage-based assets from banks.
A few days later, taking his lead from the Europeans, Paulson decided that some of the money should be used to buy stock in banks, both healthy and ailing. Let's put this plainly: The Treasury, on its own initiative, decided to partially nationalize the nine largest banks and many smaller ones. They would be given no choice in the matter on the logic that voluntary participation would stigmatize the participants. Direct big-business socialism had come to America.
Now Paulson says he doesn't want to buy the toxic assets from the banks.
Huh? What about the dire warnings that unless TARP (the Troubled Asset Relief Program) was passed our very civilization was at risk? What about all those congressmen who were lambasted as know-nothings for voting against the first bailout bill?
Well, as Emily Litella used to say on "Saturday Night Live," "Nevermind."
Paulson changed gears because the original plan wasn't getting banks to lend as intended. "Our assessment at this time is that this is not the most effective way to use TARP funds," Paulson said.
So last week he decided to target consumers. The consumer-credit market "is currently in distress. ... [N]ew issue activity has come to a halt," Paulson said. (Then why am I still getting credit-card offers in the mail?)
Then on Monday he scrapped that idea, too, and said he probably wouldn't do anything with the money. He'll leave the problem to the next administration.
Adding to the uncertainty is that some members of Congress want Paulson to lavish even more of your money on the Big Three auto companies beyond the $25 billion already promised. If President Bush vetoes that bailout, they say the Democrats will just do it after he leaves.
All this lurching from one plan to the next impedes recovery.
Why would a bank revalue its dubious assets to 50 cents on the dollar when Paulson might have paid 90 cents? Why would a firm renegotiate with its creditors if the Treasury might offer a better deal?
"Changing the rules in the middle of the game [has] thrown the market into a tizzy," said Art Hogan, chief market strategist at Jefferies & Co..
Even some congressmen are asking good questions. "Where does this stop? We started with financial services, we went from banks to insurance companies. Does it end with manufacturing? What about retail?" asked Rep. Spencer Bachus of Alabama, ranking Republican member of the House Financial Services Committee.
The uncertainty, with all its recovery-squashing consequences, has an eerie precedent: the Great Depression. Today's problems are nowhere close to the 1930s, with its 25 percent unemployment and rapidly shrinking GDP. In one respect, however, there is a similarity: the way that Franklin Roosevelt's administration created what economic historian Robert Higgs calls "regime uncertainty." Higgs writes: