It's Fear Itself....

From Bear Stearns to Citi Group our deer-caught-in-the-headlights Treasury Secretary Henry Paulson has been the Bush administration's frantic bailout fireman.... hosing down failing financial institutions before they burst into flames.... they hope.

Fireman Paulson answered the four-alarm only after Wall Street and financial institutions had partied during the Bush administration's unregulated anything-goes trickle-down orgy like Shriners at a Vegas convention.... and the whole country is suffering the hangover.

OK... that's the problem. So far, throwing money at the problem hasn't helped in any noticeable way. People are still losing their homes and jobs, the markets are still on life support and credit lines are still constipated.

What to do? Robert Samuelson opines today in "A 'Wealth Effect' In Reverse." (WaPo) "The 'wealth effect' refers to the tendency of people to adjust their spending as their wealth... concentrated heavily in housing and stocks... changes."

Samuelson points out, "... now the wealth effect is reversing. As stock and home values drop, Americans are scrambling to increase savings and curb spending. The plausible math is daunting. Since September 2007, Americans' personal wealth has dropped about $9 trillion, says economist Nigel Gault of IHS Global Insight."

The reversal in fortunes has fostered more than long-overdue consumer prudence, it has fueled fear.... and fear is the sand in the cogs of the battered economy as it grinds to a near halt.

Overcoming fear is vital if we are to reverse this self-perpetuating plummet.... fear keeps consumers and investors immobilized in the meltdown headlights, unable.... or unwilling.... to take the steps necessary to avoid the collision.

As Samuelson says, "Americans are less upset by hardships they've experienced than by those they imagine."

It'll take more than bailout money to re-energize the economy.... in the coming months it will take nerves of steel and leaders who can instill confidence faster than a speeding bullet.