Arrive Magazine - July/August, 2009

“real-time financial market coverage and business information to approximately 400 million homes worldwide, including more than 95 million households in the United States and Canada.”

Financial media can itself affect the broader economy, according to a study published in 2004 by the Federal Reserve Bank of San Francisco. In addition to economic fundamentals, the study found, “consumer sentiment also swings in response to the tone and volume of economic reporting by the media,” sometimes even swinging “significantly away from what economic fundamentals would suggest.”

Whether financial coverage has
exacerbated the current crisis is difficult
to know. In the view
of economist Dean
Baker, economic
conditions matter
far more in terms of
consumer behavior.
But Main Street took
particular notice
dlines last fall, he says,

Left to right: Voices on the economic crisis, Bill and Melinda Gates; Jim Cramer and Jon Stewart; and JP Morgan CEO Jamie Dimon

i of alarming hea

when several financial giants reportedly were on the brink of imploding.

“When people suddenly stopped spending last September, I think there was a pronounced break because of what they were hearing in the news,” says Baker, who is co-director of the Center for Economic and Policy Research in Washington. The economy was already in serious trouble, he notes, and likely still would have gone the same way. But a cacophony of frightening talk about the banks appeared to accelerate the downturn. Baker points to how retail sales and car sales went over a cliff. “Most people wouldn’t say, ‘Oh my god, I better cut my spending because Lehman Brothers just went under.’ The fact that they were suddenly supposed to be scared in mid-September was something that was conveyed to them through the media, highlighting that as a really big deal. I think it had a dramatic impact.”

Perhaps it only sped up the inevitable.

“I feel like as a country we keep falling nto ‘If it’s too good to be true it probably is’ and not recognizing that,” says Bartiromo. “We did it with the dotcoms. We did it with energy, and then we saw Enron go down with the fraud there. And now we’ve done it with housing and real estate.”

l f

The Road to Recovery

The current cycle appears worse by an order of magnitude, however, and it may result in significant changes.

“Whether or not there’s a ‘lesson’ to be learned from all this depends on your politics,” says Wessel of The Wall Street Journal. “But I think one result is that our society will be less likely to believe that the markets themselves can sort everything out. The notion of ‘When in doubt, don’t regulate’ has been discredited. We will have more government involvement in the financial sector, with more guardrails than before. I think it’ll be a long time before we go back to anything resembling this finance bubble we’ve gone through.”

It’s possible America could emerge rom the crisis driven less by consumer spending and more by fundamental business investment, Wessel adds. A recasting of the financial services industry, which grew to outsized proportions over two decades, could contribute to the shift.

“Too many of our smart young people went to business school and Wall Street,” Wessel says. “We know that the American economy is pretty resilient and that we’ll find other places for them, and maybe some will do things that are more productive in a societal sense than trading credit-default swaps in some high-stakes poker game.”

Bartiromo believes a smaller financial services industry will remain an important underpinning of the economy. She concurs that a better balance must be struck in terms of talent going to other areas essential to the nation’s long-term economic growth. She points to biotech, healthcare, mobile technology, even manufacturing.

“We have to remember that there are ots of opportunities to innovate and change things for the better,” she says, “especially now.”

As much as fear has owned the markets lately, and as much as emotions tend to rule the debate over which policies are needed for recovery and rebound, nobody around Wall Street seems to think the United States is poised to go out of business.

“It’s a really tough time, where people are watching the results of so many bad decisions,” Bartiromo says. “But we’ll get through this, with real lessons, and the country will be better off.”