TIME.com: We've heard that what the markets need is some kind of pleasant surprise to turn the psychology around. Are we ever going to be able to look to the Fed to provide it?
Dan Kadlec: Greenspan is never going to make the markets happy. He's behind the curve, behind it by design and he's going to stay there. He's determined not to let the stock market set policy.
With the not-so-bad economic numbers lately, he's got plenty of excuses not to, and he can use things like the unemployment numbers to support his decision to go with the smaller cut. But that won't turn this market around, and anybody who's waiting for Greenspan to do that is going to be waiting a long time.
Is this a philosophical decision? Is Greenspan saying that this economy can recover independent of what the markets do this spring?
DK: I don't think even Greenspan understands what we're looking at now the reverse wealth effect. Bubbles have burst before, but we've never been here before, with the sheer amount of wealth that's been destroyed in the markets. We don't know how that's going to affect consumers, how that's going to affect the larger economy. And Greenspan doesn't know either.
So what Wall Street is saying is, why take the chance of finding out the hard way?
DK: Right. Greenspan is taking the longer-term view, which is ordinarily the right thing to do. But the markets are in the middle of a crisis. The "Committee to Save the World" (Greenspan, Bob Rubin and Larry Summers, on the cover of TIME during the Asian crisis) is down to one. The markets need some leadership, and Greenspan's the only one who can provide it.
What the markets need is a surprise on the upside. There are other things that Wall Street can do analysts need to start downgrading their earnings estimates for the slowdown, and get that over with, so companies have a chance to beat the Street and provide a lift. And businesses won't start investing just because rates are lower; in that regard, there's only so much the Fed can do, and some on the Street are expecting too much from him. But we need leadership, and Greenspan can provide that.
Why not be a little more aggressive with a big inter-meeting cut? Reflating the stock bubble is not an issue we're still going down like a rock. It's gotten to the point where this really looks like it's about pride, a contest between Greenspan and the markets.
Is there anything else out there, down the road, that could turn the markets around besides the Fed?
DK: It's just the usual economic reports and this middling news is just the worst, because it gives Greenspan his justification. Bad news would be the best news, because it would force Greenspan to respond with something bigger than the markets are expecting. A tax cut a front-loaded one that's retroactive to this year might help too, but where's the Senate on that now? Where is everybody?
Somebody's got to take a big step. Once consumer confidence goes, it takes a long time to come back. We've got to stop this slide before people really hit the button.