The opaque crisis

By the time the House of Representatives passed, on the second try, President Bush's $700 billion financial bailout plan, many Americans thought they understood the problem in its broad outlines. It went something like this: With so many toxic assets on the books (in the form of mortgage-backed securities), America's financial institutions had become wary of lending to businesses, consumers and to one another. The federal government would step in to buy those bad assets in the hope that the infusion of government cash would cause the seized-up credit spigots to open once again, with the further hope that this would allow normal economic activity to resume.

That, at least, was the shorthand description of the crisis and the proposed solution that people tried to wrap their minds around, uncertain even as they did so that they had it right. That uncertainty is more than understandable, given the lack of consensus among economists on either problem or solution. And this week, the chorus of voices asking, "Just what is going on -— what is really going on?" grew, as stocks fell worldwide in the wake of the rescue plan's passage.

The first thing to remember is, even if the government plan succeeds in averting a once-in-a-lifetime economic crisis, the bailout will take time to do its work. The second thing to remember is, even if full-blown economic disaster is averted, the economy is very probably headed into recession, and the financial markets are responding as much to indicators (such as recent unemployment data) that reflect this turning of the economic cycle as they are to the credit crisis and the government's response.

Not that the immediate crisis and the overall state of the economy are unrelated. But if you think of the current state of affairs as a fire, the whole house doesn't have to go up in smoke for the value of the house to go down or for restoration work to be needed.

Even with these things in mind, though, what makes the present time so frightening is the opaque nature of economic causality. The effects are in plain sight — on Wall Street, in the falling value of Americans' retirement plans, in layoffs — but the causes remain hidden behind a wall of all-but-incomprehensible numbers and jargon. When those with advanced degrees in economics can't seem to come to agreement, the rest of us are left in an advanced state of uncertainty. And uncertainty is fertile ground for fear.

This is a dangerous time, ripe for the worst kind of demagoguery and flimflammery of all kinds. It is the sort of time when a nation most hungers for leadership. Unfortunately, genuine leadership can be in very short supply in the weeks before a seminal presidential and congressional election. The sitting president is deep in his lame-duck period. The presidential candidates are campaigning in an era when leveling with the people is considered a risk without reward. And Congress, having passed the bailout bill, has headed for the hills.

The assessment of the International Monetary Fund is that we are headed for a global economic downturn. This unwelcome news seems a realistic view of events. It might be most helpful now for those in our government, those running for government office, and those in the press to start acknowledging and explaining the true scope of the potential problem. Shedding light and providing clarity are not only the first steps in looking for solutions, they are necessary measures if we are to head off the "unreasoning terror," the "fear itself" that Franklin Delano Roosevelt warned of 75 years ago.