We’ve seen a meme spreading like a fungus in the press, mostly on the editorial/analysis/commentator side so far, blaming Barack Obama for stock market declines since Inauguration Day. Today, Drudge is pushing a Bloomberg story headlined “‘Obama Bear Market’ Punishes Investors as Dow Slumps.” Um, no. Let’s nip this nonsense in the bud before it gets out of hand.
First of all, let me get it out of the way that I think Obama has done a pretty terrible job on the economy/financial rescue front so far. Who couldn’t have seen that picking Geithner as Treasury Secretary was a mistake (Oh yeah, Wall Street)
And the administration has lurched around from one banking plan to another and none have inspired confidence. In part that’s its fault, but it’s also that, let’s face it, this is a huge, intractable problem for which there is no silver bullet. Its solutions (other than a flawed stimulus and homeowner-bailout plan) haven’t been that different from Bush’s.
But wait a minute. The Dow peaked in October of 2007. The bear market became official (meaning, stocks dropped 20 percent from their peak) in July. The markets started really falling off a cliff in September, when the Bush administration let Lehman fail, AIG and Merill had to be taken over, the Congress voted down the bailout, and Paulson had to switch teams from free marketeer to interventionist. Those events, remember, are what insured Obama’s election in the first place.
The TARP helped keep the boat from completely capsizing, but it’s more like bailing water does than fixing the actual hole in the bottom does. The economy, already in recession since December of 2007, went into freefall after the September crisis and has kept plunging since, shedding more than 600,000 jobs a month. Since the election, we’ve learned that Merrill Lynch blew a probably fatal hole in the side of Bank of America, Citigroup has been left for dead, and General Electric has been on the highway to hell—or the Pink Sheets, anyway. There’s much more in that vein if you have all day.
This is what Messrs. Obama, Geithner, and Summers inherited. Tough gig.
But let’s step even further back a bit. Dude’s been in office six weeks. The stock market is a notoriously impossible-to-predict-or-interpret animal. It goes where it may, for reasons the smartest traders can only guess at.
To put it another way, big secular declines in stocks take years to play out. The Great Depression stock crash didn’t hit bottom until 1933, four years after it started. It seems like the current one has been going on forever, but we’re still only at about 1930 or 1931.
Now, Wall Street certainly doesn’t like that its taxes are going up 3.5 percentage points, but the biggest beefs, what probably really irks CNBC’s Jim Cramer, for instance (who supported Obama’s election), is that his buddies in the hedge-fund, private-equity, and real-estate world are going to have to pay income taxes instead of much-lower capital-gains rates—more than doubling their taxes. This isn’t controversial to anyone outside those industries (why should hedge-fund managers be taxed less than hedge trimmers?), but they have heavy cannon and they’ll fire it until the ink is dry on the tax law.
The press needs to take this into account when reading Wall Street Journal editorials and CNBC reporter Charlie Gasparino’s dribblings in the New York Post (Gasparino foolishly has been blaming the stock declines on Obama since before he was elected).
I pointed yesterday to a Barry Ritholtz rant, which came out before the Bloomberg story, about this same topic, and it’s worth revisiting. He noted that the Nasdaq plunged 33 percent from George W. Bush’s election to March 5 (since that election was still up in the air through December, I calculated it after Inauguration Day, and it was more than 20 percent—which is the threshold of a bear market).
By the idiot squad’s reasoning, the 2000 tech wreck was all George Bush’s fault. Funny, I don’t recall hearing any of that from them in 2000-01.
That’s because it wasn’t remotely Bush’s fault. But to show you how this is an age-old partisan thing, I found a column in the liberal American Prospect from January 29, 2001, headlined: “The Bush Bear Market?“
It’s similarly reasoned, just flipped to the left. But that’s the only “blame Bush” piece I can find until a mid-2002 WSJ interview of George Soros where he called the crash “the Bush bear market.” That was still wildly wrongheaded, and it was seventeen months after Bush had taken office, not forty-one days.
And the Bloomberg story doesn’t even mention the Nasdaq fall under Bush pointing instead that it took eight months for the Dow to fall as much under Bush as it has already under Obama.
“It’s the Obama bear market,” said Dan Veru, who helps oversee $2.8 billion at Palisade Capital Management in Fort Lee, New Jersey. “We don’t know what the rules are in so many different areas the government is touching.”
Bloomberg as an institution doesn’t like the “to be sure” graphs, but it shouldn’t have written this story without one. As a friendly service from The Audit I’ll write them one—gratis!
“To be sure, the stock market’s crash long preceded Obama’s inauguration and election, and the economy he inherited from Bush is in a tailspin not seen for eighty years. And the extent to which Obama’s proposals have impacted the stock market is impossible to calculate.”
And the story doesn’t note that another measure of confidence in the administration, the “right track/wrong track on the economy ” polls and the popularity polls are very positive—far above Bush levels.
I don’t deny that part of the stock decline is most likely to do the lack of confidence in the mixed messages we’ve seen from Obama’s crew so far, but who knows? And get some perspective, as Ritholtz says:
But to hold him responsible for a market collapse on day 41 of his Presidency — following 8 years of gross negligence and ruinous incompetency under the Bush regime — is simply too much stupidity for any damaged nation to bear.
Bloomberg is playing right into partisan hands here with a story that could be a GOP press release. Stock markets go up, stock markets go down (and this one was trending down anyway).
Let’s not confuse correlation with causation. Of all business-news outlets, it should know better.
Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR’s business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu. Follow him on Twitter at @ryanchittum.