I was once in a supermarket checkout line where the cashier rang up a substantial load of groceries for the shopper ahead of me. As she was presenting the final tally, the shopper pointed to a bag of oranges and noted that the cashier neglected to include that item in the tally. The cashier was flustered – she was unhappy to have missed the item, but she also had no clue what the oranges cost., Her attempts to flip through a booklet of fruit and vegetable pricing came up with nothing.
The cashier, however, had a unique solution to the matter: she attempted to convince the shopper that the oranges weren't worth buying. Yes, the cashier spent a surprisingly long period of time making a passionate pitch that the quality of the oranges was inadequate, the price was outrageous for such poor quality merchandise, and that the shopper really didn't want to take them home. Of course, it was a ridiculous strategy – yet the cashier believed she could make someone believe the ridiculous by stating a strong case.
I have no idea whatever became of that cashier, but I suspect she's working in Washington in an advisory position to both Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson. She may also have President Bush's ear, too.
Why do I theorize this? For starters, Bernanke gave a speech last week that insisted the turmoil in the financial markets has eased up. Bernanke congratulated himself for his recent efforts, noting this ‘contributed to some improvement in financing markets.’ He also added that the Bear Stearns intervention also ‘seems to have bolstered confidence.’
Earlier in the month, Paulson was also spinning the positive message. In a Wall Street Journal interview, Paulson was asked about the credit crunch and bluntly stated that ‘the worst is likely to be behind us.’ He also pointed to the Bear Stearns case as a turning point, adding ‘there's no doubt that things feel better today, by a lot, than they did in March.’
And then there's the president, who never acknowledged the nation is near a recession. Hey, you cannot blame him – who wants to go down in history as the first president to see two different recessions in the course of his administration?
‘This economy is not as robust as any of us would like it,’ admitted Bush in a recent press conference, before adding, ‘The good news is that we anticipated this.’
Do you see a pattern? It appears that Bernanke, Paulson and Bush are trying to convince everyone that the worst of the current economic miasma is flowing away. While no one is ready for a rousing chorus of ‘Happy Days Are Here Again,’ there is an obvious attempt to present firm and focused talk of how things are getting better and are under control.
Compare those statements to comments made by Jeffrey Huther, vice president of fixed-income research and investment and capital markets at Freddie Mac, during the recent Mortgage Bankers Association's Secondary Marketing Conference. Says Huther: ‘In the financial markets, we looked into the mirror and broke the mirror. So we're shopping for a new one, and priced in the estimates of our losses. Returns are falling, we have downgrades, investment has dried up around the world in terms at looking at U.S.-dollar mortgages, and the pipeline's clogged. A lot of people are either looking to liquidate, have liquidated, or are thinking about liquidating portfolios. All of this created a supply that's hovering over the market, waiting for the next little bit of demand to peep out and get crushed by securities that people don't want to hold anymore. I don't think we're going to get the same investors back. European investors in particular, in their categories of the seven circles of evil, [believe] U.S. mortgages are probably up there in one of those circles.’
I can sympathize with Bernanke, Paulson and Bush, and I would hate to be in their shoes. Nonetheless, the first tenet of crisis management is honesty. Trying to spin public perception with statements that have no root in reality will not boost confidence or morale. If anything, it invites comment of a serious disconnect from the daily world.
Like that off-kilter cashier who vainly attempted to dissuade the shopper from making a purchase, the efforts of Bernanke, Paulson and Bush to convince the public that things are picking up dramatically just doesn't ring up. Whether the stakes involve the economy or a bag of oranges, this strategy will not work.
– Phil Hall, editor, Secondary Marketing Executive.
(Please address all comments regarding this opinion column to hallp@sme-online.com.)
