By Monday afternoon, many people with money in the stock market - and these days, especially with the spread of 401(k) retirement accounts, that's a lot of people - felt as if they'd climbed onto a roller-coaster ride and just about the time they reached the top, they heard the guy running the place say, "Oops." That's what it's been, truly, as American stocks lost 15 percent of their value in less than three weeks. There was a spirited rebound yesterday - a welcome shift, because on Monday the Dow was down more than 600 points on that day alone.
Franklin Roosevelt is long gone, but the Depression-era president's phrase about having "nothing to fear but fear itself" rang with freshness. Friday, when the market dropped 500 points, the blame was put on the shakiness of some European economies. Monday, after a 634-point drop, the loss of America's AAA risk-free credit rating was cited, along with continued uncertainty in Europe. Standard & Poor's, the rating agency, was the instigator in this case.
While the market reacted with a typically violent knee-jerk (fear itself, realized), Treasury Secretary Timothy Geithner and President Obama were critical of S&P's step. For example, the agency had cited as one reason for the downgrade the political turmoil in Washington surrounding the budget deficit and national debt - a foray into politics that seemed to overlook the nuts and bolts of creditworthiness.
Other observers, including New York Times columnist Paul Krugman of Princeton University, noted that S&P isn't exactly infallible. The agency once gave AAA ratings to some mortgage-backed securities, and when those assets tanked because of mortgage defaults, S&P put the blame elsewhere. And after U.S. Treasury officials found a $2 trillion mistake in S&P calculations, the agency acknowledged it but downgraded the U.S. rating anyway, Krugman wrote.
Yesterday, the market jumped up after more wild swings, with the Dow closing more than 400 points higher than it did on Monday.
There is some comfort in even a slight recovery, because though not everyone "plays the market" actively, those who have retirement savings and the like invested on Wall Street are affected by the market's ups and downs. But to achieve long-term stability, the United States, and specifically its Congress, will have to quit being bullied by the tea party element in the Republican Party that appeared ready to block an increase in the debt ceiling and risk a possible deep recession or worse in the name of standing behind its no-tax mantra.
This is not funny anymore. Responsible lawmakers must find a balance of tax increases (a gas tax, or even an income tax hike on the wealthiest Americans) and lower entitlement and other costs, seeking efficiencies in Medicare and Social Security without gutting them as some Republicans would like to do. Health-care reform, focused not just on coverage but on lower costs, is part of the mix.
Finding such a balance, Nobel economics laureate Krugman said, and fixing the fundamental problems with the economy "shouldn't be all that hard." But it will require facing up to reality in terms of how Congress views the problems, and gumption enough to reject fanciful tea party rhetoric.
Otherwise, don't even pause to unfasten your seat belt on the roller coaster. Because you'll be going for another ride, soon. And another. And another.
