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Forget comparisons to 2008 or 1987. This meltdown is nuts

Economic damage from coronavirus may linger longer than the health crisis, but there are steps we can take to minimize the pain

President Trump spoke on television from the White House as stock numbers were displayed on the floor of the New York Stock Exchange on Thursday.
President Trump spoke on television from the White House as stock numbers were displayed on the floor of the New York Stock Exchange on Thursday.BRYAN R. SMITH/AFP via Getty Images

Maybe they should close the stock market, too.

On a day when March Madness was canceled and everything from the Museum of Fine Arts to Broadway to the NHL said they would go dark, stocks cratered, with the Dow Jones industrial average losing 10 percent, its worst day since the crash of 1987, and the Standard & Poor’s 500 and Nasdaq indexes entering bear markets.

The Wall Street walloping, along with equally disastrous losses in London and across Europe, left absolutely no doubt that the economic pain caused by the coronavirus pandemic would be widespread and severe — and could linger even longer than the public health crisis.

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Because just as there is no coronavirus vaccine to keep us from getting sick, there is no way to inoculate the economy and markets from the fallout of a crisis whose true dimensions remain unclear.

Yet even as our portfolios are battered and our work and social lives upended, I keep hearing the same refrain: This is nowhere near as bad as 2008.

A somber President Trump tried to make that point Wednesday night.

“This is not a financial crisis,” he said in a televised address from the Oval Office. “This is just a temporary moment of time that we will overcome together as a nation and as a world.”

True. America’s biggest banks aren’t on the verge of collapse. The financial markets are under stress but still functioning. Foreclosures aren’t throwing millions of people out of their homes.

But does the distinction between now and a decade ago matter? Not really. At least not over the coming weeks and maybe months, as consumers and businesses try to absorb the impact of a nation grinding to a near halt: quarantines and self-isolation; the closing of schools, entertainment and sports venues, places of worship, and just about anywhere else people congregate in large numbers; and potential restrictions on domestic airline travel and public transportation.

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The Federal Reserve is slashing interest rates and on Thursday said it would pump $1.5 trillion into the short-term funding market, just as it did in the financial crisis. Congress and the White House are weighing measures to cushion the economic blow, just as they did during the financial crisis. And the stock market is melting down, just as it did during the financial crisis.

It was clear from trading in Asia and futures prices Wednesday night and Thursday morning that investors did not seem comforted by Trump’s error-marred announcement of a ban on foreign travelers from Europe. At a time when we need cooperation between global governments, the president further isolated the country with his unilateral decision. It might be the right move, but Trump handled it the wrong way.

Investors are also frustrated that administration incompetence and Washington political gridlock are slowing the responses to the health and economic crises.

When it became clear in January that the coronavirus was a serious problem in China, economists’ worse-case scenario for the United States was a short hit to economic growth, followed by a quick recovery.

Now, we’ll be lucky to escape with just a brief recession, as we did after the dot-com bust. Consumer spending, which propelled the economy all last year, is bound to suffer. Businesses, which were already pulling back, will retrench even more.

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Are we headed for the Great Recession 2.0? Let’s hope not, but there are steps we and the government can take to make sure we don’t have to live through that again.

First, take seriously the advice of public health specialists: Wash your hands a lot and avoid large crowds, stay home if you don’t feel well, and don’t go to the hospital unless you are really sick.

We can limit the spread of the virus. That will hasten the day when we can get back to our normal routines.

Second, Trump and Congress need to quickly agree on a plan that will provide meaningful and immediate help to workers and their families. A payroll tax “holiday,” the centerpiece of president’s stimulus package, won’t work. It takes too long to make much of a dent in lost income and is too expensive.

Instead, the plan released by the Democrats on Wednesday seems more sensible, with paid sick leave, free testing, food assistance, and unemployment insurance. I’m fine with throwing in a $1,000 cash payment for every adult and $500 for every child, as proposed by Harvard professor Jason Furman and others, if that gets Trump and the GOP on board.

These steps would help people weather the crisis, boost consumer confidence, and maybe even stabilize the stock market.

“The market is now focused on fiscal stimulus,” said Tony Roth, chief investment officer of Delaware-based Wilmington Trust.

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Third, try to tune out the daily moves in the stock market. A lot of trading is being driven by hedge funds and other institutional investors using algorithms to exploit the volatility. However, the price war among discount brokers, which has made commission-free trades commonplace, is encouraging average investors to be move active during this sell-off.

“More people are trading their 401(k)s,” said Mark Stoeckle, the Boston-based chief executive of Adams Funds. “Trading volumes have spiked.”

We hear the advice of the money management industry ad nauseam: Invest for the long term. Buy through the dips. Don’t try to time the market.

And most of us dutifully do nothing, then wait years for our retirement and college savings accounts to recover — all along paying fees to our managers, whether that’s Fidelity Investments or Vanguard or an independent adviser.

We’re damned if we sell, damned if we don’t.

Until the arc of the coronavirus crisis becomes clearer, expect more anxiety-inducing days in the market like we’ve had this week.

“Insanity is contagious,” Captain Yossarian said in Joseph Heller’s “Catch-22.”

In the markets, at least, it seems like Yossarian was right.



Larry Edelman can be reached at larry.edelman@globe.com. Follow him on Twitter @GlobeNewsEd.