Consumer confidence plunged more than 10 points in February, even as it was reported that Wall Street bonuses rose 17% in 2009.  If a seer had told us a year ago that the two stories would run side-by-side on the same day, we’d have predicted there’d be rioting in the streets.  Instead, the streets were calm, at least as far as we could tell, and investors took the news in stride, sending the Dow down a measly 100 points. We can recall a time not long ago when the stock market might have shown more deference toward such grim economic news. No longer, apparently. What do consumers know, anyway?  The mere fact of the Dow trading above 10,000 must mean U.S. households were just having a bad hair day when the consumer survey was conducted, right?  

Whatever the case, few could have been surprised by reports of the collapse in consumer confidence, investors least of all.  Like you and I, even the smug Lords of Wall Street are capable of judging for themselves whether the economy is indeed recovering.  For most of us, in fact, despite shamelessly irresponsible economic cheerleading by the news media, signs of deep, and still-deepening recession, are all around us. Stores large and small are closing at an unprecedented rate and mounting vacancies have turned many malls into ghost towns. In every city and town, restaurants that have thrived for ten, twenty or even thirty years have thrown in the towel. Sweeping budget cuts are being contemplated at all levels of government, on top of unprecedented cuts that have already been made. And in our individual lives, we are all working harder than ever just to stay in place.

Subprime’s Frankenstein

And yet, any news story that is not flat-out negative on the economy is treated as ipso facto evidence of recovery.  Yesterday, for instance, it was reported that home prices have not been falling as rapidly as before. Does this mean the housing market has stabilized, as virtually all mainstream news sources seem to have inferred? Or is it simply a lull in real estate deflation?  Any regular reader of these commentaries will already know what we think. Considering how much stimulus has been shot into real estate so far, the meager results should not have caused anyone to wax optimistic. On the contrary, we should fear for our economic lives now that The Government has resurrected the subprime market and those too-big-to-fail Frankensteins, Fannie and Freddie.  Could anyone have imagined a year ago that the GSEs would return to be too-big-to-fail once again?

The recovery story has flouted reality since the first supposed green-shoots appeared in the news last fall.  We find tales of UFOs and alien abductions more credible. And yet, the Dow Industrials hover above 10000, seemingly inured to an onslaught of frightening news. In addition to yesterday’s grave consumer confidence report, it was reported that the list of troubled banks had surged by 27% and that the FDIC is now $20.9 billion in the hole. How much longer can mere hubris, as exemplified by a stock market that refuses to die, stand up to that kind of news?

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-- Posted Wednesday, 24 February 2010 | Digg This Article