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Opinion: How saving the global financial system deepened the global recession
President Obama’s new proposals for financial regulation sound like a big mea culpa, not for anything he did, but for the excesses of the past decade that helped lead 65 percent of the world’s countries into recession.
His speech this week could not have come at a more critical time, as the U.S. and the world stand poised at the crossroads of recovery. The global financial system has largely been stabilized. Yet, the dramatic and disorderly process of rescuing the system upset consumers who lost confidence in their leaders and institutions. Now, if consumers who still have jobs don’t loosen their wallets, at least a little, the recession is going to get a lot worse and last a lot longer.
How to get people spending again is a vexing problem for the administration. Americans are hurting after a battering of bankruptcies and foreclosures. In May, 9.4 percent were unemployed. Consumers are scared. This is one reason why President Obama wants to establish the Consumer Financial Protection Agency. “This agency will have the power to set standards so that companies compete by offering innovative products that consumers actually want — and actually understand,” he said. “Those ridiculous contracts with pages of fine print that no one can figure out — those things will be a thing of the past.”
Consumers need to believe that government is going to look out for them. They realized that they were last on the help list back in October as then-Secretary of the Treasury Henry Paulson first demanded an unprecedented amount of cash to save the banks. Viewers watched Paulson’s worried expression as he described the need for intervention. Members of Congress, whom he prodded to act quickly, appeared flummoxed and disoriented. The fear in their voices and their collective angst over their ability to stop a global financial meltdown radiated through television and computer screens across the globe.
In the Screen Age, this emotional contagion could spread instantly to a Berlin shopper watching on his cell phone, to hotel guests eyeing a flat screen in an elevator in Denver, to a family watching television in Beijing, or to airline passengers viewing screens high over the Andes.
Emotional contagion is the phenomenon of catching other people’s emotions. Sigal Barsade, a professor of management at the Wharton School at the University of Pennsylvania, has written extensively about it and described how it works. “You see people fearful around you, and it triggers something cognitively in you that says, ‘Wow, even though there is nothing wrong with me right now, if all these people are so afraid, maybe something will happen, and I should cut back spending,’” she said. “But the cognitive aspect is just a small piece of it. It is also an automatic process. We don’t realize it is happening.”