Evans & Novak

Outlook: The corporate scandals and the stock market slump have altered the political climate, at least temporarily.

1) The Democratic gloom has been lifted. Their hopes of regaining the House and retaining the Senate have been lifted. On the other hand, deep concern is expressed in the privacy of the Senate Republican cloakroom about getting back in power.

2) The source of the change is tying President George W. Bush to the economic concerns. That has not yet been reflected in the polls, but there is a lag time for this sort of thing. The Democratic campaign has been relentless in associating the Administration and the President with economic woes, magnified through news media questioning and speculation.

3) President Bush's timing has been off. By waiting too long to speak out against corporate corruption, Bush's belated use of the bully pulpit has coincided with the crisis of investor confidence. Thus, Democrats and the media have tracked the President's two corporate pep talks-on Wall Street and in Birmingham-with the falling Dow Jones average. In truth, the President has not been at his best in those performances.

4) The decision by Bush to join the Congressional criminalization of corporate behavior is a risky venture, both politically and economically. There is no line against the tough regulatory posture pressed by Sen. Paul Sarbanes (D.-Md.), the Banking Committee chairman.

5) The dredging up of Bush's 1992 Securities and Exchange Commission investigation of his Harken Energy stock sale has been relentlessly promoted by the Democrats and eagerly pursued by the news media. There is nothing of substance there, but the campaign will continue as long as the White House declines to release all SEC material.

6) Similarly, the targeting of SEC Chairman Harvey Pitt has produced one of those familiar problems: keep Pitt and keep an easy target in place, or get rid of him and look weak. His only failing has been the fact that as a lawyer, he represented companies before the SEC and has had to recuse himself from several cases. President Bush has informed Pitt that he is sticking with him, but the White House has not been entirely happy with Pitt's performance in defending himself.

International Criminal Court: The United Nations last week approved a compromise offer from President Bush regarding U.S. immunity from prosecution by the global court and U.S. continued involvement in international peacekeeping treaties. Bush's moves on this heighten tensions between the U.S. President and foreign powers.

1) Bush's.original move to "unsign" the Rome treaty establishing the ICC was uncharacteristically bold, and worked for a while to squelch criticism from his base. Many conservative activists were so cheered by Bush's withdrawal, that they said that single act made the Bush presidency a success.

2) The President was successful in his effort to keep fairly quiet in his warning that he would bring home U.S. peacekeepers in Bosnia unless the UN agreed to exempt U.S. soldiers from the court's jurisdiction. The ultimatum received quiet praise among his base and very little domestic criticism. But overseas, it ignited a firestorm.

3) Bush agreed to a one-year exemption while a final deal can be reached on peacekeeping. Europeans were at first opposed to even this deal, but they realized Bush had the upper hand.

U.S. Economy: Concern over the U.S. economy is deepening, with the stock market in a free fall and investor confidence tumbling. Pessimism is infecting everyone from institutional managers to small stock purchasers.

1) The "double-dip" recession-the quick return to recession after a brief economic recovery-a few weeks ago was considered remote, but now is viewed as a real possibility. For the first time, we are hearing prudent observers use the word "depression" in warning what may lie ahead.

2) All this comes at a time when the economy is fairly sound and the economic recovery has barely begun. The problem is two-fold. First, the mentality of the market is highly pessimistic and made more so by the unfolding scandals. Second, the rush of harsh regulatory legislation by Congress to prevent corruption adds to the lack of investor confidence.

3) In particular, the impending tighter regulation by the Securities and Exchange Commission-under political fire by all sides-can cause serious damage in the business community. There are many built-in protections against a real stock market collapse, but the warning signals are there right now. The dilemma is that more regulation is needed but the call for regulation adds to the panic.

Copyright Human Events Publishing, Inc. Jul 22, 2002
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