MONDAY, DECEMBER 10, 2007

UP AND DOWN WALL STREET  

By ALAN ABELSON



Dropping the Bomb

NO DOUBT DAD WARNED HIM EARLY on that being president wasn't easy. But you know George: He gave Pop a condescending smirk and said, "Sure, sure."

Well, the week that just was proved beyond cavil that Dubya's old man knew what he was talking about. First off came a startling report from the 16 agencies charged with cooking up half-baked intelligence for the president to digest.

Now, normally, they're very reliable at serving up just what he likes, avoiding anything that might cause him so much as a twinge of internal distress. But last week, they dished out stuff that Mr. Bush was sure to have trouble swallowing and was certain to leave just an awful taste in his mouth. Maybe they switched chefs.

What the Estimate (as they call it, including the capital E to emphasize it's not just the usual offhand guess that the intelligence crew passes along when they're not too busy playing squash) suggested was that the famed axis of evil, already somewhat creaky, was in danger of losing its biggest wheel: Iran. Yep, the very same Iran that this administration, led by the president and his ever-loyal secretary of state, Condoleezza Rice, has been flaying as the No.1 menace to mankind.

Talk about atomic bombs, which is just what Dubya and Condi have been warning that Iran is in hot pursuit of, our latest intelligence yielded an explosion with the force of 100 of them. For what it contended was that Iran has not pursued everyone's favorite weapon of mass destruction for some four years.

Making the revelation megatons more shocking was that it seems like only yesterday -- maybe because it just about was -- that Mr. Bush conjured up the prospect of Word War III unless Iran was forced to abandon its push for nukes.

And, for that matter, even as the report was released, Condi was doggedly trying to rally the shrinking coalition of the willing and the growing coterie of the unwillingly to turn the screws on Tehran to ditch its nuclear program before the planet went up in flames.

Adding to the puzzlement was that Mr. Bush seemingly refused to take yes as an answer and determinedly vacillated between describing the new intelligence as vindication of his foreign policy and urging the world under no circumstances to trust those wicked and wily Persians.

Remember the old quip about you'd have to be crazy not to be paranoid? In trying to sort out all the contradictory impulses and seemingly irreconcilable contradictions spawned by our spooks' about-face on Iran, we were overtaken by the conviction that you'd have to be comatose not to be suspicious of any and all official explanations.

Why would the Bushmen, who are positively obsessive about secrecy, go public with an intelligence report that turned their implacably hostile policy toward their favorite bogey nation upside down? Why did the president and his henchfolk continue to pound the drums on the apocalyptic danger posed by a nuclear Iran months after they presumably got word that Iran supposedly has called it quits? And how come Dick Cheney didn't take those responsible for preparing the report on a hunting trip?

There's always the possibility, of course, that in an administration that's increasingly dysfunctional, confusion reached a point where it reigned supreme, somebody carelessly hit the wrong key on the computer and, presto!, top-secret morphed into bold-faced headlines. But our own hunch is that Mr. Bush, for any number of conceivable reasons -- the joint chiefs persuaded him we simply don't have the spare muscle to easily take out Iran, or Iraq has made him more than a little gun shy, or he has been seized with that ailment lame-duck presidents are prey to, namely concern about his "legacy" -- decided to turn down the heat on Iran.

Besides, one of his brave underlings may have respectfully called his attention to the fact that things seem to be getting a bit out of hand on the home front, what with the shadow of eviction falling over a rapidly expanding chunk of the population -- foreclosures in the third quarter were the greatest in 35 years, and mortgage delinquencies hit a new high since 1986 -- causing the cry for the powers-that-be to "do something" to grow in volume and shrillness.

So Mr. Bush, reluctant as he may have been to divert his gaze from the thrilling world stage to the drab domestic front, responded by unveiling a blueprint for helping homeowners in dire straits meet their mortgage payments by a selective five-year freeze on interest rates.

The plan ostensibly was the handiwork of mortgage companies and investors laboring under the baleful eye of Treasury Secretary Paulson, who must have worn gloves during the negotiations since the president crowed that it was strictly a private-sector construct, unsullied by the government's ugly fingerprints.

Compliance with the freeze on the part of mortgage lenders and investors will be strictly voluntary, which prompted spoilsport cynics (there are always a couple in every crowd) to carp that was like having convicted Mafia hit men decide what their sentence should be.

But it wasn't only the usual bleeding-heart suspects who found fault with the proposal.

No sooner was it unfurled than 61 academic and think-tank economists of a good, conservative bent pounced on it as bad for markets, the economy and the financial health and well-being of the nation. Obviously, anything that 61 economists don't like can't be all bad.

But apart from possibly putting an already seriously impaired credit system in intensive care and causing acute discomfort and uncertainty among mortgage investors, the proposal may at best provide a mild palliative for an indeterminate number of homeowners, although likely a heap fewer than the 1.2 million reckoned by Mr. Bush.

Happily, we're not the superstitious type or else we'd see as a bad omen that in announcing the care package, the president advised hard-pressed homeowners seeking relief "to call 1-800-995-HOPE." Alas, he meant 1-888-995-HOPE. Anyone sent rushing to the phone in response to Mr. Bush's urging was rewarded with a busy signal.

Next time, maybe, Dubya should mind what his Daddy tells him.

INVESTORS LARGELY SHRUGGED OFF the big flip-flop on Iran -- they were too busy trying to decide which stock to buy to spend a heck of a lot of time trying to figure out what it meant, for the peace of the world, or even for truly important things like uranium futures or crude prices. However, they were quite eager to embrace most everything else in the way of an excuse to get back into the stock market.

So the mere fact that Washington was showing interest in the mortgage mess and had come up with a hastily conceived and problematic solution to the subprime disaster touched off a rather wild celebration. By contrast, bad news was cheerfully ignored.

A case in point was the latest survey by Duke University and CFO magazine of how the nation's chief financial officers, the guys and gals with their fingers on the corporate pulse, view the economic scene, present and prospective.

In a word, pretty gloomily. Optimism among the CFOs is at the lowest point in the six years that Duke and CFO have been measuring it. The bears outnumbered bulls by an astounding 8-to-1 margin, with 72% of the CFOs queried more downbeat than they were only a quarter ago and a mere 9% feeling better about things.

They cited weak consumer demand, high labor and fuel costs and, of course, the woes in the credit markets as the biggest depressants. On this last score, a full third of the companies reported feeling a credit pinch, and roughly 20% reported employees stepping up withdrawals from their 401(k) accounts, a good many of them to come up with the dough to pay their mortgages or ward off personal bankruptcy.

Looking ahead, the CFOs see capital spending edging up a meager 4% and barely adding to their payrolls at all (but they do expect to increase outsourcing slots at a fair pace, which doesn't hold out much hope for what we still think is a pretty glum jobs picture).

As John Graham, director of the survey and a finance professor at Duke's Fuqua School of Business, comments, CFO optimism spiraling down in such dramatic fashion is plenty worrisome because CFOs have a track record of accurately predicting future economic activity, and their predictions run one or two months ahead of other common economic indicators.

Besides feeble capital investment and a less-than-bright job outlook, the latest survey, he says, points to weak corporate earnings.

None of this, incidentally, squares with the purportedly encouraging November employment numbers released on Friday by the fantasy factory run by the Bureau of Labor Statistics.

As our favorite pair of jobs scanners, the Liscio Report's Philippa Dunne and Doug Henwood, observe, the gains were very narrowly concentrated, and a lot of the additions represented part-timers eager to work full time.

They also note that so far this year, employment is up a whole 1.1%, the weakest showing since early 2004, when we were emerging from an extended stretch of jobless recovery.


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