Why the Government’s Attempt to Instill False Confidence Will Backfire

Indeed, trying to instill false confidence will actually backfire on Geithner, Summers and the boys and make the crisis worse.

Why?

Because psychologists say that – until government and business leaders prove they can behave responsibly, and until the perpetrators of financial fraud are held accountable – real trust will not be restored and the economy will not recover.

Trying to put a happy face on a grim situation, continuing to do things which are transparent attempts to instill false confidence, and leaving in power the people who caused the crisis reinforces the market’s convictions that (1) government and business leaders are behaving irresponsibly instead of addressing the fundamental problems and (2) there is no accountability.

So people’s trust declines still further, thus substantially delaying any chance of a sustainable economic recovery. In other words, by trying too hard to instill confidence, the powers-that-be actually undermine it and exacerbate the financial crisis.

Keeping quiet about how bad things are won’t help. As the leading independent economists and financial experts all agree, the three things that will help are:

1. Honestly addressing the causes of the crisis;
2. Honestly addressing the necessary – if bitter – medicine needed to get out of the crisis; and
3. Holding responsible those who caused the crisis.