After Wall Street, anger spreads to Congress

Allison Linn Senior writer • Profile • E-mail

Mary Ann Bock got pretty angry when she found out that lax mortgage standards had started a financial maelstrom that appeared likely to require billions of dollars in federal money to fix.

She got even angrier after she heard that Congress wasn’t able to pass a bill aimed at stemming the ensuing financial crisis.

“Clearly, as insane as that bailout was, something had to be done,” said Bock, 58. “Now, I’m thinking it’s just all about politics and these people wanting to keep their jobs … and forget about helping the country.”

The government’s failure to reach a compromise on a hotly contested federal bailout package is adding to the frustration and confusion surrounding the country’s current financial crisis. It’s also worrying economists who say that politicians’ failure to adequately explain to Americans what is at stake, and to find a palatable solution, could lead to a much more serious economic downturn.

“The risk we run now is we will have a much deeper and more protracted recession than what we had before,” said Mark Gertler, an economics professor at New York University.

He faults politicians and government officials for not doing enough to help Americans understand why the crisis on Wall Street could start to hit home on Main Street. He also thinks no one bothered to spend enough time explaining to Americans how the proposal would work, leading many Americans to see it as simply a handout for Wall Street fat cats.

The proposed $700 billion bailout plan failed to pass the House of Representatives on Monday amid political squabbling and fears that a vote for the plan would impact what lever ordinary voters pull come Election Day.

“This is really a failure, at a massive level, of the political system,” Gertler said.

James Wilcox, a professor of financial institutions at UC Berkeley’s Haas School of Business, has been surprised by people’s reaction to the plan, which called for setting up a system to let the government buy up billions of dollars in bad mortgage-backed debts from banks and other financial institutions. But he understands why people are feeling confused and unhappy about it.

“Basically, almost no one bothered to explain to people why they should be in favor of it,” he said.

Indeed, for many the current financial crisis still feels somewhat abstract. Even as the crisis has toppled financial institutions such as Lehman Bros. and led to the failure of banks including mammoth Washington Mutual, for many Americans the most obvious impact has been that their homes or retirement accounts lost value.

If the financial crisis spreads further, however, economists say they could start to see more day-to-day impacts, such as that they can’t get a car loan or home equity line of credit, or that their credit card limits are reduced.

If the crisis continues to spread unchecked, they also could find that their employer isn’t able to borrow the money it needs to buy new equipment or inventory, expand its operations, hire new employees or even pay the ones it already has.

That could lead to higher unemployment and lower consumer spending, and further weaken an already delicate economy.

“We are in a credit crunch and it’s starting to crunch America’s businesses, large and small,” Wilcox said.

Brian Bethune, U.S. economist with Global Insight, faults government officials for using opaque terms like “downside risk to growth” to explain the problems, instead of using blunter, more obvious terms that people can understand, like “recession.” He also thinks the government hasn’t been forthright enough about how other problems, such as high oil prices, are adding to the country’s financial woes.

“They’re not communicating clearly … and as a result people don’t understand why this is a crisis and why we need emergency legislation,” Bethune said.

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