This Easter week, an interesting way to look at the U.S. financial markets is through the prism of religion -- and, in my case, Catholicism. Easter is the holiest and most dramatically tragic week of the Christian calendar. We begin with the euphoria and adulation of Palm Sunday. From these highs, we descend to the betrayal of spy Wednesday as the herd changes, the pathos of the Last Supper, the nadir of the Crucifixion and redemption of the Ascension. This week was doubly-special for us Irish Catholics as we celebrated St. Patrick's Day -- a proselytizer par excellence -- on Monday.
The same evening -- March 17th -- I found myself in midtown at the studios of a rather hysterical Fox Business News. As the financial world seemed to be falling apart and the presenter was getting more manic, it struck me that Wall Street had become all Catholic in the face of the meltdown.
One way to make sense of the decline of the U.S. and the gradual debasement of U.S. currency is to think of the Catholic ceremony or "get out of jail" card called confession. Once you regard Ben Bernanke as a benign parish priest, things begin to make sense. Corporate America is behaving like a sinner, and Ben Bernanke -- the head of the Federal Reserve -- is the forgiving priest.
For years, the U.S. banking sector was being warned that overspending and over-borrowing was the path to financial delinquency. All the alarm bells were ringing, the currency fell, the current account deficit rose, the saving ratio collapsed and the price of houses overshot ridiculously. Yet the banks in the U.S. ignored the warning.
Is it any surprise that when the Jesus lost it in the Temple it was with the money lenders? Yet the sinners continued with their abhorrent ways.
Now that a crisis has jolted Wall Street, it is adopting a Catholic 'bless me Father for I have sinned' tack. Bernanke -- like a good priest -- is responding to these acts of contrition with the monetary equivalent of three "Hail Mary's and an Our Father." He is granting absolution all over the place, most recently with last week's $200 billion bailout, this week's interest rate cut and an undertaking to guarantee the financial toxic waste on Bear Stern's balance sheet.
Now any reader who, as a child, has been to confession will remember the great sense of relief after the act of contrition. In Dublin, we used to skip out of our local church after confessing a few "mortalers" to our local priest. We were euphoric. We rallied and proceeded -- without hesitation -- to the local shop for a bout of serial sweet robbing! Confession only made legitimate our delinquency.
Similar euphoria is gripping Wall Street now. The rally of the past few days is unlikely to have any steam in it as the corrective power of the priest is open to question. No one believes that the financial crisis is over. Nor do people accept the word of the priest anymore. We have reached 'bailout fatigue.'
The last time we witnessed anything like bailout fatigue from the financial markets was in July 1998, when the International Monetary Fund (IMF) issued a $10 billion loan to Russia to assist the delinquent Yeltsin government, as a result of an economic crisis that had been building for months. Gullible market players took this loan as a sign that the corner had been turned. They contended that such intervention could only stabilize things.
In contrast, I got a call that morning from an old market hand who had seen it all before and who told me: ''Sell everything; this is your last chance." He was on the money -- Russia defaulted three weeks later.
There was an eerily similar reaction in world financial markets to the Fed's most recent bailout. The volatility of markets underscores the fact that no one has a clue about the next phase.
Many investors regard the Fed's intervention as either a sign of panic or a sign that the balance sheets of banks were much ropier than even the most pessimistic bear had imagined. As a result -- after an initial rise in prices -- the intervention prompted a sell-off, confirming the suspicion that we are not out of the woods yet, by any means.
These days, the catchphrase in the banking world is now ''guilty until proven innocent." Everyone knows that there is more horrible sub-prime and other derivative related crud on the balance sheets of some large banks, but because the banks have been evasive, no one knows for sure where the toxic stuff is. So the essential lubricant of the financial system -- liquidity -- has dried up, because trust has evaporated. You lend to people you trust and, if you don't trust them any more, you demand a higher risk premium for the pleasure of lending them cash.
This ephemeral quality -- trust -- is what the central banks are trying to resuscitate. The financial markets arena has become a large game of pass the parcel. No bank wants to be the one that lends to the other bank with the huge sub-prime losses. The banks are desperately trying to pretend that they trust each other, while at the same time minimizing the potential risk of any inter-bank loan, by trying to lay off that risk to someone else.
When everyone was confident, there were lots of banks happy to ensure that the system of loans, repackaged loans and syndicated loans worked well. But now the chain has broken, and the central banks are finding that trust is an expensive and elusive commodity.
Even Father Bernanke -- the most benign, forgiving priest on the block -- has lost his powers. There is a real sense this Easter Week in New York that the financial markets, like Elliot Spitzer, are beyond redemption.
David McWilliams is author of The Pope's Children (John Wiley and Sons), available now.