Wall Street euphoria costs us plenty

November 20th, 2008 at 08:03pm Annette LaCross

Published Nov. 16:

If you’re not feeling particularly upbeat about the economy lately, you have plenty of company.

But you probably already knew that.

Consumers en masse have retreated to the financial equivalent of bomb shelters, waiting for the markets to stop exploding. Wall Street, pale and emaciated, is feebly searching for a foxhole of its own. Retailers are already hoarding provisions, anticipating torpid holiday sales and the long, hard drought which will inevitably follow.

And industry after industry is lining up on Capitol Hill, hoping desperately the federal government will throw them a lifeline.

There is, however, light at the end of this long, dark tunnel. Unfortunately for most of us, the good news these days too often comes disguised as bad news.

But here it is: There is an end to the lean times. Market contractions are an inevitable part of market expansions. That’s cold comfort to many of us, crouched in our shelters and waiting for the fallout to dissipate, but the lean times, like the boom years, will pass.

Now for the actual bad news: The depth of a market contraction can usually be measured by the breadth of the euphoria that drove the expansion. And the expansion that began nearly a decade ago was, by 2005, edging out of euphoria and preparing to leap headlong into hysteria.

So I don’t expect to see any solid growth, and then only in some sectors, until 2012 or so.

But there is one thing you must keep in mind, however, as we weather the storm around us: The government isn’t saving you.

It’s trying, of course. Lately it’s been throwing money around as though it grew on trees (as luck would have it, the federal government does, in fact, own a Mint).

But that’s cold comfort, too, since we at the consumer level will start seeing the trickle-down effects of that money in, oh … 2012 or so.

More than two years ago, when we were still living blissfully beyond our means and banks were actually loaning money, a few number crunchers on Wall Street were giving their ledgers a second look. Some of their investments were failing. Spectacularly.

Then more of the moneymen began scratching their heads.

And suddenly, the majority of Wall Street’s power brokers were wondering how in the world they were going to talk their way out of the mess they had created.

That was in the third or fourth quarter of 2005, depending on how closely they were watching their books.

Remember, this contraction may have been heralded by the stunning — well, at the time it was — collapse of investment bank Bear Stearns in March, but it was growing long before that.

In fact, the week before Bear Stearns’ abrupt failure — when Bear executives were loudly proclaiming their financial good health — Federal Reserve Chairman Ben Bernanke made what, at the time, was an extraordinary announcement, calling the Fed the lender of last resort. Just in case, you know, anybody needed money.

The trillions of dollars (you heard me) the government will end up throwing at the loudest problems in the market may help. At this point, it may not. There’s only so much the government can do, after all, beyond forming regulatory committees and scolding the financial institutions who are obstinately refusing to abide by the rules set by the regulatory committees.

At the end of the day, the government — bogged down as it is in bickering over who gets how much — won’t be the force to pull us out of this mess.

As always, we’ll pull ourselves out of it. We got ourselves into it — you’ve heard me countless times, Faithful Reader, decrying the debt that always destroys our booms — and no matter how much of our money the government spends, it will be up to us to get us out.

With or without the U.S. auto industry.

Entry Filed under: Uncategorized