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September 21, 2001
Last week's wounds to our nation were the work of terrorists. This week's injuries to the economy and the financial markets are self-inflicted.
Panic on this scale is an ugly sight.
For the first time in anyone's experience in a national crisis, the frantic drive to sell everything has included Treasury bonds. Those yields rose all week long, by yesterday as high as they were going into 911 Day, thereby preventing any improvement in mortgage rates, still stuck.
The markets don't want to hold anything but cash. 90-day T-bills pay 2.19%, last reached in the 1954 recession. The Fed funds rate is officially pegged at 3.00% after Monday's .50% cut, but traded all week near 1.50%, suppressed by cash pouring out of stock and bond markets and in from the Fed.
In one consequential shred of good news: extremely low short-term rates have dragged three- and five-year ARM rates into the low and high fives, respectively, and outstanding ARMs are going to adjust down to unimaginably low levels. The one-year T-bill index will fall to about 2.50% in October, and COFI will be in the threes by Christmas.
Some of this financial panic is rational. The bond market has been hurt by the deaths of so many skilled intermediaries, and has some reason to fear the loss of the surplus and deficits to come. The stock market is flailing wildly downhill, trying to place a future value on income-producing entities temporarily buried in losses.
The President's speech Thursday was a fine one, especially in its unmistakable show of personal character (those who still despise this man, or think him stupid because of his tangled impromptu speech, can no more be redeemed than those convinced of Mr. Clinton's villainy).
We are not very much at war. We have some fighting to do for a long time, and will suffer casualties, but we are not going into some self-defeating spasm of retribution.
Still, the toughest aspect of economics this week is the evident emotional paralysis of so many of our citizens. All economic activity -- FedEx shipments, mall visits, showings to home buyers, even crimes -- has downshifted 20% or so and is not bouncing back.
Our generation now has its wake-up call. After all our self-indulgence, who are we, really? What do we amount to? Until we demonstrate worthwhile mettle, here and now, the stock market is right to dump its valuation of us.
I do not enjoy exhorting others to action, and do not like being exhorted, but too many of us are still on our heels, self included. So: help a shaken friend, slap a back, encourage action, stare fear in the eye. Reach back for something extra, suck it up, let it out a notch, do your best. Go for it: be your best.
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