Well, you don’t have to be an arbitrage expert to follow the cause and effect.
The panic on Wall Street started the Monday after George W. Bush made a weekend television appearance painting an apocalyptic vision for America if congress did not approve his Treasury Secretary’s hastily concocted $700 billion bailout plan for dealing with the toxic subprime mortgage funds contaminating financial markets. By the time trading opened on Monday, the sell orders were already backing up at most brokerage houses. Instead of reassuring investors, Bush started the stampede.
How could government intervention to prevent panic have the opposite effect? Put most bluntly, George W. Bush has zero credibility with most Americans by now. How many times has he appeared on television and misled the American public? He implied that Saddam Hussein had a connection with 9-11. He said Hussein was hiding weapons of mass destruction in Iraq. He declared “mission accomplished” in a war that is still taking American lives. He praised his FEMA director even as Michael Brown was botching the Katrina recovery efforts.
And suddenly we’re supposed to believe that Bush is finally right about something?
The loss of faith in President Bush has spilled over to the entire federal government. As a result, we are seeing a vicious downward spiral. Each time the government announces another measure to prop up financial markets, investors become more convinced of the severity of the problem—and the government’s inability to fix it.
The crisis we face now is a crisis of faith. To find the root cause of the public mistrust, one need look no further than 1700 Pennsylvania Avenue. Maybe it would be best for everyone if Mr. Bush just kept quiet for a while.
Raul Ramos y Sanchez