What will it take to lift confidence?

Congress and the White House will both focus this week on keeping the crisis in confidence on Wall Street from spreading to consumers on Main Street, where it could derail an already fragile economic recovery.

President Bush heads to Wall Street Tuesday to unveil his plan to impose criminal penalties on executives who fudge corporate figures. Meanwhile, the Senate will take up the Democrats' sweeping plan to overhaul the accounting profession. The bill's prospects improved sharply after WorldCom announced the biggest-ever misstatement of profits – off by $3.85 billion.

The crisis presents tough challenges for policymakers. Decisive confidence-building steps were easier to find in the late 1980s, when the public was shaken by a spate of failed savings-and-loan institutions. Then the government could bring to bear its tradition of bank-industry oversight. Dealing with today's turmoil in financial markets is a more perplexing problem, experts say.

Still, by aggressively challenging shoddy accounting, Mr. Bush and lawmakers can help reassure the public, even if more scandals emerge, some experts say.

"The risk is that sliding investor confidence takes business and consumer confidence with it," says Mark Zandi, chief economist at Economy.Com, an economic research company. "The longer this drags on, the greater the chance that consumer confidence will start to slide and the risk to the recovery will intensify."

Washington's focus on restoring confidence comes as battered investors, concerned about the war on terror and corporate bookkeeping, drag stocks down. Normally, the stock market recovers from a recession along with the economy.

Even after a rally Friday during abbreviated holiday trading, the stock market opens this week with the Dow Jones Industrial Average down 20 percent from its peak in early 2000, the Standard and Poor's 500 index down 35.2 percent, and the technology-heavy Nasdaq index down a numbing 71.3 percent.

Those numbers help explain why President Bush will be on Wall Street, with calls for tough penalties on fudged finances.

"They have to be very aggressive in prosecuting the offenders. And I think they have to err on the side of overdoing it," Mr. Zandi says. They "have to send a very strong signal, not only to potential investors but to the public."

While Bush takes to the bully pulpit, Congress – and large investors – are putting their own pressure on Wall Street.

The Sarbanes bill is probably "a good idea," says Andrew Hodge, chief US economist at DRI-WEFA, an economic consulting company. But "more than anything else, it is incumbent on investors to get the information they need.... That process is finally and belatedly under way."

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