The New York Times, Washington Post, USA Today, and Wall Street Journal lead with yet another terrible, horrible, no good, very bad day at the stock market. The Dow Jones industrial average plunged 5.1 percent and closed below the 8,000 mark for the first time since March 2003. The market is now down 43.5 percent from a high point hit a little more than a year ago. USAT notes that the market has "wiped out nearly $10 trillion in wealth since the October 2007 peak," and the WSJ highlights that the recent plunges have nearly wiped out "all the gains from the last bull market, which lasted from October 2002 to October 2007." Optimists who had hoped the market had nowhere to go but up after the lows of last month were hit with a cold dose of reality by a string of grim economic news that made it clear the pain is far from over.
The Los Angeles Timesgives big play to the stock market woes but leads with news that the California Supreme Court has agreed to review legal challenges to Proposition 8, the voter initiative that banned same-sex couples from getting married in the state. The court's move suggests that it wants to resolve all issues relating to marriage between two people of the same sex in one ruling. The court refused to allow the marriages to continue until a decision has been made, but legal experts warn this shouldn't be read as a sign that the court is ready to uphold the ban.
Investors looking for reasons to be anxious about the economy's future didn't have to look far. The leaders of Detroit's Big Three were grilled for a second day by skeptical lawmakers who made it pretty clear the U.S. auto industry shouldn't be expecting a bailout. The Federal Reserve's leaders warned that they expect the economy to be in a recession through the middle of next year, if not longer; new data showed that builders started fewer homes last month, marking the fourth straight month of declines to reach the lowest level in at least the 49 years since the government has kept track. And those weren't the only data to reach a record. Perhaps most worrying of all, the Consumer Price Index fell 1 percent in October, its biggest one-month drop in the index's 61-year history.
While the average consumer is likely to welcome a decrease in prices, the decrease can be disastrous for an economy and has brought back the much-talked-about fears of deflation, a prolonged period of falling prices. The NYT focuses on deflation—"an economists' nightmare"—in its lead story, while the WSJ devotes a separate front-page story to the issue. Deflation was "a hallmark of the Depression and Japan's so-called lost decade," notes the NYT. Everyone still thinks the chances of deflation are extremely slim but the fact that it's even a concern ramps up the pressure on President-elect Barack Obama and lawmakers to pass a new fiscal stimulus package. "Whatever I thought that risk was four or five months ago, I think it's bigger now, even if it is still small," Fed Vice Chairman Donald Kohn said. Even talking about deflation now marks an amazing turn of events considering that this summer the big concern was inflation and many economists openly worried about the prospects of stagflation, the simultaneous increase of inflation and unemployment.
The only reason people aren't more freaked out at the record-breaking price decline is that it was mainly due to falling energy prices, which is good for consumers and is generally seen as a bad indicator of long-term trends. Excluding energy and food, prices fell 0.1 percent in October, which is far more modest but hardly insignificant since, as the WSJ notes, it marked the first decline since 1982. The WP points out that broadly speaking, economists worry that "businesses are losing any ability to set prices because demand for their goods has dried up." Due to all the depressing economic news, more consumers are choosing to play it safe and save what they have. Or as one economist succinctly puts it: "People are scared to death." The LAT points out that this decline in spending suggests that the only way the economy will get a boost is through increased government spending. Indeed, the NYT points to a number of statistics that make it seem "clear that the nation is entering a more frugal era after several years of conspicuous consumption."
The nervousness over the economy's future could clearly be seen in the markets, where, as the WSJ points out, investors seem once again to be willing to accept nearly no returns in order to sink their money into the safe haven of short-term Treasury bills. The pain wasn't isolated in stocks. The WSJ highlights that by some measures, "bonds were hit harder than stocks." The WP points out that this anxiety in the bond markets makes it difficult for companies to raise money.
In the WSJ's op-ed page, Andy Kessler says that while investors are taught that they should listen to the stock market, right now you should "stick wax in your ears and don't listen to the market until February." When it's working properly, the market can be a good indicator of the economy as a whole, but due to the credit crisis, Kessler is "convinced the stock market is at its least efficient today," and investors shouldn't read too much into the declines that are sure to come in the next two months.
While investors have lost trillions in the stock market over the past year, many top officials at companies that are at the heart of the current crisis managed to make a pretty penny over the past five years, reveals a WSJ analysis. Fifteen leaders of large home-building and financial firms made more than $100 million in that time period, for example. Among the 15 are the heads of Lehman Bros. and Bear Stearns. This is hardly a new phenomenon as periods of economic booms usually translate into astronomical paychecks for those who participated in the bubble. During the technology bubble of the late 1990s, more than 50 people made more than $100 million right before the crash.
The LAT and NYT front, and everyone mentions, the latest news from the presidential transition. President-elect Obama has decided to nominate Tom Daschle, the former Senate Democratic leader, as secretary of Health and Human Services. Everyone sees the nomination as a sign that Obama plans to aggressively tackle health care since Daschle is an experienced legislator who wrote a book about the issue. Apparently, Daschle made it clear he would only accept the Cabinet position if Obama also named him the administration's point man to develop a health care plan. "Being a Cabinet secretary is a car and driver and you get to go to the head of the line at the airport, unless you're Defense or State," a Daschle associate tells the WP. "This was key for Tom to have that White House connection." In other transition news, Gov. Janet Napolitano of Arizona appears to be Obama's choice to become homeland security secretary.
Daschle's selection not only provides another example of how Obama is filling his administration with Washington veterans, but also promises to test his strict ethics rules. Daschle's wife is a registered lobbyist whose list of clients might provide conflicts of interest for her husband, but her focus is in the aerospace and military industries. And, as the NYT details in a piece inside, Daschle himself is also open to examination. Since leaving the Senate, Daschle has been a board member of the Mayo Clinic as well as an adviser to a law and lobbying firm. Although this might not prevent his appointment, Daschle might have to recuse himself from issues that relate to his former employers, "a potentially broad swatch of the health secretary's portfolio," says the NYT, which notes the lobbying firm has dozens of health care industry clients, including pharmaceutical companies and health care providers.
The LAT fronts an interesting interview with a senior officer, "Zimbabwe's version of the KGB: the Central Intelligence Organization." The meeting between journalist and spy, which was carried out in the utmost secrecy, reveals how a group of people who could once be counted on to be the most loyal to the president have become disenchanted. The senior officer estimates that 60 percent to 70 percent of CIO officers no longer back President Robert Mugabe. "That the dark heart of Mugabe's web of fear is abandoning him underscores how tenuous his grip on power has become," writes the LAT's Robyn Dixon.
In the WP's op-ed page, Slate founder Michael Kinsley writes that Americans may have just elected a president who is part of the one group that suffers from socially sanctioned discrimination in the United States: smokers. Although Obama claims to have quit smoking, "the evidence is ambiguous." Regardless, if he hasn't quit, "we should forgive him" because his "good habits outweigh his single bad one." And perhaps his failure to quit is part of the reason why he's been able to maintain his now-famous calm demeanor. "If he needs an occasional cigarette to preserve it," writes Kinsley, "let's hand him an ashtray, offer him a light and look the other way."