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A lot of you tell us this darned recession would go away if we in the media would just shut up about it.
The idea that news coverage can make economic problems worse has some validity. If, for example, you read that the economy is slowing and layoffs are likely, you might well decide against buying that new car or washing machine or taking that trip to Disney World. If enough people make similar decisions, the result is economic contraction, because consumer spending makes up two-thirds of the U.S. economy.
But there are two problems with telling the news media to lay off. One is that such a cone of silence would require an enormous conspiracy, and the other is that consumer decisions aren't driving this particular recession.
Let's take that first problem. I speak from nearly two decades' experience as a daily newspaper reporter, including a four-year stint at one of the nation's biggest papers, the Los Angeles Times. I have friends at many other major newspapers across the country and have spent a fair bit of time in radio and TV stations as well.
So I can tell you with authority that anyone who believes the media can pull off vast conspiracies has spent no time in an actual newsroom. As a matter of fact, the typical metropolitan newspaper, radio station or TV outlet would have trouble conspiring to find its backside with both hands.
The consumer is on the sidelines
"The media" are made up of often-cranky individuals who are about as easy to herd as cats. Tell them the American people have no right to know what's happening with real-estate prices, the stock market or business investment, and they won't even bother to laugh in your face. They'll be back at their computers churning out a dozen such stories just to show you how wrong you are. That's what free and independent media are supposed to do.And this time, it's become pretty clear that consumers are only background players in the economic drama.
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What's at the core of this recession is the credit crunch. And the credit crunch is happening because Wall Street companies no longer trust each other.
The big financial institutions are sitting on a bunch of toxic waste in the form of defaulted mortgage loans and exotic financial investments. This waste hasn't been properly valued because the markets for these investments have dried up; since nobody's buying, nobody really knows what they're worth.
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Recession is here, economists sayA Wall Street Journal survey of economists says 71% believe the U.S. economy is in a recession.
Each institution knows it has this waste and suspects the others have more than they're letting on. So they're being extremely cautious about doing business with one another. They don't want to extend another institution credit if that institution is about to crater into a smoking void.
That's what has regulators and economists so worried. Without business-level credit to grease the wheels, the economy grinds to a halt, regardless of whether you buy a new car or not.
Continued: Now for the really bad news
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