Populist Anger Continues to Rise

Jon Stewart is a comedian, not a media critic, but he voiced America's frustration with the financial system last week when he sparred with CNBC's Jim Cramer. Robert Reich is an economist who better summed up the essence of Stewart's populist rant in a word: "helpless."

Writing in Salon.com today, the former Clinton administration cabinet secretary is a frequent speaker at the Commonwealth Club of California. Reich spoke at the Club in January, saying that the federal stimulus bill needed to be much larger than the legislation that ultimately passed ($787 billion over two years). On his blog, Reich recommends that the Obama administration quickly draft another stimulus bill of roughly the same size.

He also believes the populist streak that is becoming more fervent across the nation as instances of financial impropriety increase is hindering the confidence of the American people and rendering them helpless.

If our very own Secretary of the Treasury [Timothy Geithner] doesn't even learn of the bonuses until months after AIG has decided to pay them, and cannot make stick his decision that they should not be paid, AIG is not even accountable to the government. That means AIG's executives -- using $170 billion of our money, so far -- are accountable to no one.

The possibility of this firestorm of populism possibly engulfing the Democratic-led Congress and White House may be the impetus for a story in today's New York Times in which top White House officials fear the backlash could make future bailouts more difficult to push through Congress.

Reich also makes an interesting point regarding AIG's financial priorities if it were forced into bankruptcy last fall, instead of being propped up by the government.

Had AIG gone into Chapter 11 bankruptcy or been liquidated, as it would have without government aid, no bonuses would ever be paid (they would have had a lower priority under bankruptcy law than AIG's debts to other creditors); indeed, AIG's executives would have long ago been on the street. And any mention of the word "talent" in the same sentence as "AIG" or "credit default swaps" would be laughable if laughing weren't already so expensive.

In the meantime, Geithner and economic adviser Larry Summers, among others in the administration, continue to say there is little the government can do to stop AIG employees from keeping their portion of the $165 million pie. And New York Attorney General Andrew Cuomo wants the names and job performance records of every AIG employee receiving the infamous bonuses. Whether such efforts at instilling confidence in the accountability of recipients of the bailouts works or not will likely play a big role in forming future attitudes of American citizens toward government response to the economic crisis.

--Steven Tavares

Ecomomists Confusing Bull and the Bear Market

Although the Dow dropped below the 9,000 mark today amidst a round of profit-taking, last week's mini-rally still has economic experts optimistic about the new year. But is this a self-fulfilling prophesy perpetrated by Wall Street?

Optimism in the financial world is part-and-parcel to the whole idea of investing, isn't it? If the outlook were bleak, who would participate?

Last week's impressive rally, which lifted the Dow over 9,000 for the first time in two months, may have had the fortune of arriving in tandem with numerous articles on the 2009 outlook for the economy. Of course, most were bullish and those that were not, were eagerly anticipating good times near the middle of the year.

Though Jim Cramer writing at thestreet.com has a headline foreseeing a return to the Wall Street of old, he only predicts the Dow rising to near 10,000 – hardly something to celebrate. Cramer based his projections of the possibility of the housing market rebounding with new buyers and – like many other economists – wondering how high unemployment will rise.

A recent article in USA Today does a good job of laying out various scenarios occurring during the next year. Some optimistic, some pessimistic, and others ominously following the current downward trends.

In a nod to the suspicion that nobody knows where the economy is heading, the USA Today article contributes this:

A recent Citigroup survey of institutional investors reflects the wide disparity of potential performance outcomes for stocks next year. More than 20 percent expect the S&P 500 to rise 11 percent to 22 percent in 2009. But more extreme predictions — both pessimistic and optimistic — were also evident. About 15 percent think stocks could fall as little as 12 percent or as much as 39 percent. And about 15 percent said stocks could post gains ranging from 44 percent to 55 percent.

So, what does all this optimism portend for the economy?

Niall Ferguson at the Financial Times wrote a far more honest and hardly satisfactory outlook on the economy with a clever look back on 2009. In the article he refers to not the second-coming of the Great Depression but what he coins as the "Great Repression," where the entire economy is in denial about its current state.

So, while Ford's reported 32-percent drop in sales looks rosy next to Chrysler's announced 53-percent tumble, unemployment looks more and more grim and banks teeter near insolvency, many experts on the market still say don't worry. An unsympathetic observer might conclude that this sort of denial would make the former Iraqi Minister of Information Mohammed Saeed al-Sahaf – also known as the man who pleaded with reporters that American troops were not in Baghdad when they were – quite proud.