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Wall Street, Fall 2009

Things look grim at the moment, but where will we be a year from now? That depends on who’s president.


Illustration by Ward Sutton  

Pass the Hamburger Helper and the Milwaukee’s Best. Broom that interior decorator; Ikea’s got some dynamite furnishings. Boy, those public schools sure look better than I thought—what was so great about Dalton or Nightingale-Bamford or Saint Ann’s, anyway? Those Koreans make fabulous cars. And phones and TVs and everything else, for that matter.

What will New York look like a year from now? The answer: bad and probably worse, and perhaps downright catastrophic. Three degrees of awful. The first step was passing the bank-bailout legislation. Now that it’s done—and if it didn’t get done we would have been looking at a guaranteed economic collapse—the critical issue will be presidential leadership. And while any president will be an improvement over the current one, there is a growing belief on Wall Street that Barack Obama has the capacity to lead us out of this wilderness while John McCain does not. I’ll go a step further: Obama is a recession. McCain is a depression.

Wall Street usually favors Republicans when it comes to managing the economy, but this time around the financial community is skeptical. John McCain has done everything he can to avoid talking about the economy, lest he be tarred with the brush of George Bush’s ineptitude. And when McCain has attempted to step into the fray, he’s been far from reassuring. First, he insisted that the fundamentals of the economy were sound; then he turned around and told us it was the end of the economic world as we know it, and suspended his campaign to scramble back to Washington and save the day on the bailout bill—only to have little visible effect. For all his talk of being a maverick, McCain looks an awful lot like President Bush on the credit crisis: He doesn’t seem to understand Wall Street or Main Street, he is dogmatically anti-regulation, and his economic team is a joke. Carly Fiorina almost destroyed the onetime best technology company in America, Hewlett-Packard, and Meg Whitman took eBay, the best dot-com player, and turned it into a mediocre franchise that has no growth. Both are perceived by Wall Street to be also-rans who are on the team because they have nothing else to do.

Obama is no messiah, of course, but there’s a reason the Street sees him as a more capable manager of the credit crisis. He seems to understand the complexity of the problem, and while he’s nobody’s populist, he’s at least perceived as less tone-deaf to everyday Americans’ problems than his opponent. Obama also has a better team, in the likes of Larry Summers, the renowned economist and former Harvard president who probably knows more about this crisis than anyone, and Warren Buffett, the smartest man in business, period. And Obama is a globalist, in an age where the world’s economies are increasingly interdependent.

Some people discount the president’s role in managing the economy. They argue that the chief executive gets too much credit when the nation’s finances are good and too much blame when they’re bad. That may be true, but not in this case. One of the central causes of the current financial crisis is the now-epidemic lack of trust in the banking system. With the nationalization of Fannie and Freddie and AIG, the shuttering of Lehman, the shotgun marriages of Bear and Washington Mutual, the American people aren’t just shying away from risk, they are shying away from banks altogether, with the middle class leaving for the First National Bank of Sealy and the upper class headed to Duxiana Bank and Trust. That kind of pessimism, left unchecked, could easily turn a recession into a depression, as that sense of helplessness now pervades everyone who would invest in a new company, grow a small business, or buy a house or car. Having a president who can restore faith in the system as quickly as possible is critical to thawing the credit freeze. McCain’s stumbling and uncertainty are themselves a liability. Obama not only gives off the sense that he can solve the problem more effectively, but he’s a better communicator who’s more capable of inspiring confidence. Obama more than his opponent can convince us that the only thing we have to fear is economic fear itself. And with the economy going nowhere but south unless faith in the system is restored, we need convincing.

Let’s assume for the moment, if only because the most recent polls suggest it will happen, that Obama becomes president. How will the economy look a year from now? Still pretty damn bad. Before things settle down, we’re going to see credit defaults spreading from residential homes to commercial real estate to credit cards. I can see unemployment hitting 10 percent before heading down. It’s that tough to get credit right now, and it will take that much time for new money—even if it’s injected today, and people stop hoarding it—to make its way through the system. Things will be roughest in the most depressed housing markets, like those in Florida, California, Nevada, Arizona, Ohio, and Indiana, where foreclosures will remain an issue no matter how many bills get passed to buy up mortgages and mortgage-based securities.


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