The sense of investor betrayal felt from the Enron fiasco will dampen the economic recovery according to BMO Nesbitt Burns chief economist Sherry Cooper

“As additional accounting problems are uncovered elsewhere, the fallout ripples through financial markets, which inevitably damages both business and consumer confidence,” Cooper says. “Were it not for the bankruptcy of Enron (not to mention K-Mart, Global Crossing, and maybe others) the stock market rebound would not have been so quickly aborted and the recovery in the economy might have approached the pace seen in other postwar expansions.”

Instead, she says that many investors now feel misled by accountants, corporations, Wall Street, consultants and the government. “The bursting of the Nasdaq bubble was bad enough, but the fallout from the Enron bankruptcy filing on December 2 is another animal altogether. It raises the specter that even the strongest and biggest companies cannot be trusted. As well, it risks the development of an all-out credit crunch that could derail, or at least stall, a burgeoning rebound.”

“The irony is that if it weren’t for the Enron-related credit crunch and all of its ramifications, the economic rebound might well be surprising on the high side,” says Cooper. “The consumer has been the stalwart spender throughout the recession; but even consumers are weary of ongoing Enron hearings and news of continued bankruptcies. The economy likely bottomed in the fourth quarter, and growth in the first period of this year will be positive at roughly a 2% annual rate. But given the current reality, this could well be the slowest recovery in the postwar period.”