By Michael A. Fletcher
Washington Post Staff Writer
Sunday, August 19, 2007

CRAWFORD, Tex., Aug. 18 -- Worries about the deepening housing slump and an intensifying credit crunch consumed an increasingly anxious Wall Street last week, but President Bush barely broke stride.

Bush went mountain biking and cleared a trail on his ranch here as the stock market gyrated Thursday. When asked whether the president was concerned, Gordon Johndroe, a White House spokesman, responded with confidence: "As President Bush has said, the U.S. economy is fundamentally sound, and so we expect to see continued economic growth."

A day later, the Federal Reserve lowered a key interest rate, triggering a sharp upturn in the stock market. The White House had little to say about that, as well. "We have full confidence in the Federal Reserve and respect their independence, but we don't comment on their specific policy announcements," Johndroe told reporters.

Such restraint -- in both style and substance -- has prompted criticism in financial circles that the Bush administration appears out of touch economically.

"The idea from Washington seems to have been, 'Oh, those silly, panicked traders. Don't they know the economy is good?' " said Jim Vogel, an executive vice president with FTN Financial Capital Markets in Memphis. "The traders say, 'Don't the policymakers realize that some fundamentals are becoming unglued?' "

But the White House says the cool response is appropriate, to avoid influencing market behavior with what one senior administration official called "the soothing words of policymakers." The reaction reflects an ideological choice, as well -- namely, the administration's faith in the ability of markets to correct themselves without government intervention.

Behind the scenes, officials said, White House economic advisers and members of the President's Working Group on Financial Markets have been closely monitoring the situation.

"The president gets briefed regularly," the senior administration official said. "If there is something special, it is not in our interest to discuss it. It can be like pushing a snowball down the hill."

Administration officials are concerned that the way they publicly react to sharp changes in the market can often have an undesired effect. An overreaction, one official said, could add to a panic. No reaction creates an appearance of complacency. Too much optimism can be troublesome.

Earlier this month, when problems in the mortgage market became apparent, Bush tried to reassure investors by asserting that the housing market would right itself and make a "soft landing." To many economists, Bush's view was not credible.

"That was just naive and laughable and completely out of step with the mood of the market," Christian E. Weller, a senior economist at the Center for American Progress, said of Bush's comment.

The tightening of credit has caused analysts to call for more vigorous federal action, such as loosening limits on Freddie Mac and Fannie Mae, the government-chartered corporations that buy mortgages from lenders. So far, the administration has rejected the idea.

Others say the White House should move decisively toward better regulatory safeguards, and some want the government to do more to help people in danger of defaulting on their mortgages and losing their homes. The Bush administration, which has pushed home ownership even for poor people and those with shaky credit as a way of building wealth, has not responded to those ideas.

"The Federal Reserve and the administration have been way behind the curve on these problems," said Desmond Lachman, a fellow at the American Enterprise Institute. "First they were in denial about a problem when it existed. Then they said it was limited to the subprime [mortgage] market when it wasn't. Then they said it was contained when it wasn't."

At this juncture, some economists suggest that the White House would do best by leaving the question of credit availability to the Federal Reserve, which operates independently, and by focusing instead on improving the transparency of mortgage and private equity firms to avert future problems.

"It is a mistake for the government to get too involved at this point," said Barry P. Bosworth, a senior fellow at the Brookings Institution.