Although everything at some point may be cultural and psychological, I don't think it's irrelevant that the major news producers are all individually and organizationally connected with people who gain or lose enormous sums of money as the stock markets lose.

When the major news producers try to express care for 'Main Street', it's fake and belabored; when they express their concerns for Wall Street, it's genuine, it's deep, it's lasting, and it's based on personal associations and investments.

For the major news producers, Wall Street matters much, much more than Main Street.

Have you revised your earlier estimate that the housing bubble would cause a loss of $8 trillion down to about 1/2 of that number? What led you to that revision? Just curious. I'm trying to get a feel for the scale of things...

Steve I think Dean is talking about the wealth already lost because of the housing bubble deflation when using the $4 trillion to $5 trillion figure here.

Steve wrote, Have you revised your earlier estimate that the housing bubble would cause a loss of $8 trillion down to about 1/2 of that number?

It seems at least a few economists think we are about half way there on working our way down from the top of the bubble. Thus, we are likely to see another $4 trillion in loses related to the correction in home prices.

The stock market may not be the economy, but it's a lot easier to cover. What lazy reporter wants to trek off to some podunk town or suburb and see what real people are doing when they can write about the endless horse race on Wall Street?

Dean, you have reversed your position on the bailout. You said something to the effect that your initial assessment of the effect the financial crisis would have on the payment system was wrong (or exaggerated). This reversal suggests that this issue is quite complex. Since this issue is key to taking position on the whole idea of bailout (perhaps a single one to consider), I think it really deserves a detailed analysis with numbers backing it up. Do you plan to publish such analysis?

"None of this trivializes the dimension of the economic problems facing the country. However, these problems stem first and foremost from the loss of $4 trillion to $5 trillion of housing wealth due to the collapse of the housing bubble."

I find this to be unfortunate phrasing. Perhaps "net worth" would work better in place of "wealth" above. Obviously, that "wealth" never existed in the first place, as it was, in reality, nothing more than inflated asset values based on a real estate bubble.

No actual wealth was harmed in the making of this film (the houses are still there). I think one problem a lot of people have understanding the economy is that economists do a poor job distinguishing between actual wealth, which has definite limits, and asset values, which can practically rise without limits. At one time, the land in Japan was theoretically worth 4 times as much as the land in the US; but the actual output of wealth still hasn't reached the point, two decades later, that those values can be realized.

The stock markets are reflecting the conventional wisdom in the media, they do not provide an independent assessment of the economy.

Really, the stock market is pretty irrelevant (though I guess you could argue bank stock prices affect attempts at recapitalization?). The real question is whether the credit markets freeze up.

That would certainly have an effect on the real economy.

Matt wrote, I think one problem a lot of people have understanding the economy is that economists do a poor job distinguishing between actual wealth, which has definite limits, and asset values, which can practically rise without limits.

IMHO the key issue is that economists don't (or refuse to) understand the economics of land.

Since land is in fixed supply, it is much more apt to be bid up in a bubble. So it behaves much more like a collectibles market than a "normal" market.

Bravo, El Cid and PeakTV. Much if not most media reporting on "the economy" is biased by the reporters' personal interest in the stock market. That is true regardless of the merits of the other posters' comments.

I was going to post exactly what Matt said -- I'm have no doubt "loss" is the right word in econ-and-financial-speak, because Dean Baker is always very precise in what he says.

But here in the regular world, "loss" means "lost", that is something that was there and has gone missing.

The problem is that if the masses get the idea into their head that it really "went missing", then they will believe that it can be "found" again with a bit of effort.

And the biggest danger in all of this, IMHO, is the very American belief that housing prices should always appreciate, and that the government will be pressured heavily at the voting booth until not only is the fall arrested but until the McMansions are again selling for more than the owners originally paid.

Is DeLong doing anything other than defending economic policy as theater?

Roubini says there's no data to show that the Paulson plan would work and plenty to say that it won't. But all I can see among the "serious" people is the theory that "acting serious" while calling for calm is the best answer for now.
That's kind of like voting for McCain because he has grey hair and used to be in the military.

Of course you're right. But as a recent retiree, my view of the economy looks pretty bleak when I look at the value of my portfolio plummet like it did yesterday. My personal economical activities will be curtailed in the face of decreased wealth,which will affect the national economy if there are enough people like me. So while I see the point you're making, I would say you haven't carried the analysis far enough.

Fear and greed are fundamental in market pricing. One should buy when people are fearfull and sell when people are confident.

That is how we have been nailing tops and bottom of markets for sometime now with an interrupted successful record.

We called the BOTTOM of Monday towards the close, and called the profit taking today.

When you visit, read the about the real-time experiment of calling tops and bottoms (do not miss it if you like safe profits).

http://financialtraders.blogspot.com/2008/09/nq-qqqq-ndx-qid-stock-trading-profit.html

panic sells papers.

The panic appeared to be very temporary. The DJIA recovered most of its loss today.

The failure of yesterday's House vote on HR 3997 really was a no-brainer. This outcome became plainly evident on the day Sec. Paulson appeared before the Senate Banking Cmte. Hitler had a better chance of gaining entry into heaven. So, what's really going on?

Could it all be cover -- something of a sideshow -- while the banking system rapidly consolidates without much discussion (or more aptly, so this could proceed with all due appearances being it is, indeed, "necessary" and, therefore, should not be challenged)?

Might also the frenzy surrounding the bailout be a reflection of the degree to which private finance can effectively blackmail the public, having built up a Ponzi scheme of such incredible proportions it has almost become a laughing game to threaten the pyramid's collapse, while control over the commercial banking system is consolidated, the public is extorted and the Treasury is further looted?

How much of yesterday's stock market slide was a function of the SEC's temporary ban on the short sales of financials? And what of the drop was a means to the end identified by Rep. Brown-Waite (R-FL) who, during debate over HR 3997, called the bill an "extortion?"

As for connections between the stock market and the economy, I don't suppose one day's trading has much meaning. However, stringing many days, weeks, and months together, it's hard not to see a direct connection.