Free Fall’s Over, but Where Are We Landing?

BACK in September, when financial reality was still merely horrible but not yet catastrophic, a local software start-up called Balihoo was poised to expand.

It already sported the outward trappings of tech world success: an airy space in an old brick warehouse downtown, renovated with recycled wood and glass; a roomful of 20-somethings in fleece pullovers, their mountain bikes hanging from wall-mounted racks; and a hot new product.

All that Balihoo needed was more money, and it was about to get some. Three venture capital firms beckoned with offers to invest a fresh $3 million in the young company.

Then Lehman Brothers collapsed, beginning a string of spectacular Wall Street failures. As primal fear seized the financial system, money suddenly became as difficult to secure as true love on a reality dating show. The venture capitalists changed their minds.

“All that interest disappeared,” says Balihoo’s chief executive, Peter Gombert. “It was nuclear winter.”

In October, Balihoo laid off 10 people in Boise and braced for more painful days. But in the last several weeks, the venture capitalists have returned, enticed by Balihoo’s strong sales, and also by something infinitely more valuable: glimmers of renewed faith in parts of American commerce. “Risk” no longer seems like a radioactive word.

“The spigot turned back on,” says Mr. Gombert, who now expects to raise as much as $5 million. Some of that money will allow him to hire four or five people who will help Balihoo continue to make software that enables national brands to customize local advertising campaigns.

“We still will be pretty conservative in our growth,” he says. “The economy still hasn’t rebounded, and one of the worst things we could do is spend that money fruitlessly. Everybody’s still feeling the pain, but we’re starting to see a little creep up in confidence.”

Three months into a new presidency begun in the midst of deepening economic desperation, the myriad programs of the Obama administration appear to have taken the edge off the financial crisis while generating momentum toward economic recovery that remains, by most estimates, at least several months away.

After the convulsions of last fall, when seemingly impregnable financial institutions fell and cash all but vanished from many areas of commercial life, borrowers with decent credit — from home buyers to corporations — are finding money available on increasingly attractive terms. Home sales are up in many markets, albeit at sharply lower prices. Consumer spending, still shrinking, has nonetheless halted its panicked retreat.

Yet the economy remains pitifully weak, with distress abundant from strapped households to anxious corporate boardrooms. More than two million jobs disappeared over the first three months of the year as the unemployment rate soared to 8.5 percent. With wages still shrinking or evaporating, stock portfolios and savings accounts ravaged, and the future still uncomfortably uncertain, millions of households are likely to keep scrimping, challenging any potential recovery.

“We’ve just had the worst hit to wealth in the history of the data,” says Robert Barbera, chief economist at the research and trading firm the Investment Technology Group. “The labor market data is unambiguously horrible.”

So will the Obama administration’s apparent achievement in arresting an economic free fall yield a sustainable revival, creating millions of jobs, generating fresh business opportunities and restoring a sense of optimism?

Can programs aimed at reinvigorating the financial system make money flow, allowing companies to expand and hire? Will federal spending amount to something like a piñata at a children’s birthday party, with the proceeds scattered willy-nilly? Or will that money help catalyze a genuine economic renewal?

BOISE, a metropolitan area of 600,000 people set in the high desert, is as good a place as any to try to figure this out. In many respects, the local economy presents a microcosm of the recent American experience, making it a useful laboratory.

A former trading post on the Oregon Trail, Boise now has microbreweries, coffee houses and bohemian chic boutiques inhabiting brick storefronts downtown. Beefy men in chamois shirts debate fishing tackle over steins of beer, while others with goatees and pierced lips sip chai lattes and discuss herbal medicine.