Fear is fueling the recession-can we calm it? - | WBTV Charlotte

Fear is fueling the recession-can we calm it?

By Melissa Hankins - bio l email

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CHARLOTTE, NC (WBTV) - Half of us here in the country own stock, and many are relying on it for our future.

So when Insurance giant AIG reported the worst-ever quarterly loss in the country's corporate history yesterday, panic gripped the nation, and a truth became crystal clear...it's fear that's fueling the recession. On the stock floor, and in the mall.

"We've got to turn both the confidence of investors around, and we've got to turn the confidence of consumers around," says economist John Connaughton. Connaughton and his colleagues use polls to create a consumer confidence number that typically floats around 100. Right now, that number's at 25.

"It's never been this low," he says. "This is just absolutely a phenomenal number, and it basically says consumers are absolutely scared."

And so are the executives running our financial institutions.

"They're scared of not having enough cash to pass the stress test," Connaughton explains.

In fact, he says banks are so terrified of failing Uncle Sam's new test, they're stashing money to make their balance sheets look better...money they could be lending. In normal times, the entire banking industry keeps about $2 billion dollars in reserve.

"Today it's 800 billion dollars," Connaughton says. "That's a phenomenal increase. It's a four hundred fold increase in the amount of reserves and they're doing it primarily because they're scared...and that money, that 800 billion, is sitting on the sideline. What you've got is potentially 800 billion dollars which could be loaned to people to buy houses, to buy cars, to create jobs.

You know all that money in the stimulus plan?

"That pales in comparison to this money that's being stockpiled on the side here that could be driving the economy," Connaughton says. "It doesn't matter what the budget is, it doesn't matter what the stimulus package is, it doesn't matter about the TARP program or anything else. Until banks start lending money and stop holding on to excess reserves the economy's not going to get better."

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