Dà jà vu. The market was celebrating signs of recovery last year too, just months before the Lehman Brothers collapse. In July 2008, according to the Los Angeles Times, President George Bush tried to calm the markets by saying, "We will come through this challenge stronger than ever before. Our economy has continued growing, consumers are spending, businesses are investing, exports continue increasing, and American productivity remains strong. 76 A month later in late August, the new GDP report showed US economic growth to be "much stronger than previously believed. 77 And finally, two weeks later, on September 15th, the morning that Lehman collapsed, Senator John McCain asserted forcefully that "the fundamentals of our economy are strong. 78
Similarly, this year, we've seen repeated efforts to sound the trumpets and declare victory prematurely. For example, even though the market has celebrated big banks profits so far this year, the Huffington Post reported that "The percent of banks that lost money [in the second] quarter set an all-time high. 79 In fact, the percentage of banks that were unprofitable in the first half of 2009 is up 59% from last year. In fact, 2008 was the industry's worst year for profitability -- and 2009 is currently on pace to beat it.80
This has been going on all summer. First in May, even before the results of the Treasury Department's "stress tests of the largest financial institutions came out, the New York Times reported that the Obama administration "seems prepared to argue that"the broad financial system is healthier than many investors fear. 81 So here we go again.
The stress tests showed that the biggest financial institutions needed to raise an additional $75 billion.82 It was later revealed that the number had actually been revised downwards at the behest of the banks, and that the Federal Reserve's initial findings had put the number even higher.83
Then in June, Dow Jones reported that a decline in credit card delinquencies in the previous month was "igniting hope of a turnaround among investors of plastic, even though the same article also noted that actual credit card losses had continued to climb.84 A month and a half later, the government celebrated that "the overall economy contracted at an annual rate of only 1 percent in the spring quarter. 85
To Wall Street, that may be a reason to rejoice. To the average American, it means things continued to get worse.
In early August, the New York Times reported that "The most heartening employment report since last summer suggested on Friday that a recovery was under way.86 This "heartening report actually showed an additional quarter million job losses in the month of July, and while the seasonally-adjusted unemployment rate declined a tenth of a percentage point, it was "mainly because so many people dropped out of the hunt for work, ceasing to list themselves as unemployed. 87
Once again, the market was not celebrating things getting better, but that they were getting worse more slowly!
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