Irwin Kellner declares, "We have met the enemy and he is us" (Oct. 27, 2008). How so? Kellner, MarketWatch's chief economist, says we wanted to kiss a frog and turn it into a prince. Like children in a fantasy world we demonstrated credulity. We bought into the Wall Street lie that high risk securities made from subprime loans (sows' ears) could be spun into silk purses. We wanted money to grow on trees! Well, Wall Street showed us it could grow money on trees and eat our free lunch, too! Now we have to pay for ‘sweet little lies’ made viable by ignorance and greed.
Today's massive stock market rally testifies that democratic capitalism has become a bizarre way of organizing a society. We're not a democratic republic in the sense we once were, since leveraged speculation now explains our hopes and challenges more than any system of political representation. Let's be honest about it: Anytime the fate of a nation, or perhaps the world, rides on the overwhelming influence of bets made on paper assets with merely discretionary value, the system has passed the tipping point and has become irrational and unjust.
The Brimelow & Rubenstein argument that the bottom may be in sight deserves further attention. After all, 200 years of stock market price trend history should not be ignored, especially when a graphic of the history suggests a strong correlation between the trend line and market prices. History does repeat itself — for awhile. It repeated itself each year in the Grecian and Roman empires, until both fell. A trend can endure robustly for two or more centuries, then collapse.
What a week! The Dow Jones Industrial Average closed the week at 8,378, down 40% from its 52 week high. The NYSE index, a broader measure of stock market pain closed on Friday at 5,247, a numbing 47% devaluation from its 52 week high. Likewise, the S&P 500 is off some 43% from its 52 week high. Regardless of the stock mix in the indexes, the numbers are sobering. What should Americans make of the situation? Is this a time to buy? Hold? Or sell?
Some may find it ironic that when stock market capitulation occurs in the current bust cycle, even Mark Hulbert will not know except in his rear view mirror — so he claims. Meanwhile, he is helping the American investor understand better than before just what capitulation is, and is not. There is a certain value in this, at least to the practitioners of long cycle contrarian investing.
One does not have to agree with all or most of Paul Farrell’s fourteen points on disaster capitalism to appreciate the thesis: Our country has been hijacked by a network of elites and our American heritage is now hazarded. The “democratic capitalism” that we’re pushing worldwide is plutocratic democracy and exploitative of the masses. We’re ruled by celebrities as pawns and money moguls as monarchs.
David Weidner says that the 2008 crash has Americans wanting to loot Wall Street castles since Wall Street looted their homes. The good news is that Weidner counts himself among those who are angry with Wall Street. The bad news that he reads too much “revenge” into the public mind and not enough respect for the sanctity of real justice.
Here comes the debate about regulating Wall Street, right on schedule. Three great problems exist. First, the rule-making is tardy. We’re locking the barn door after the herd has been rustled and shipped to other shores. Second, we’ve learned that the watchdogs in regulatory agencies and securities rating organizations are wolves. Instead of running them off we’ll see to it that they have their usual positions of influence when the next chapter of Wall Street unfolds. Third, we need a few good macro-level changes instead of an avalanche of micro-management rules.
What is a “free market,” and does its nature matter? It matters all the more now that Morgan Stanley’s CEO John Mack is calling for the oversight of the financial services industry by a global authority. A laissez faire approach to rule-making produced the environment where Morgan Stanley leveraged itself more than 30 to 1, with some hedge funds that it services going higher. What is this phenomenon if not ‘greed gone wild’? Still, free market apologists blithely declare that markets provide their own remedies and correctives if given space and time.
David Callaway draws a timely comparison between Wall Street’s springtime predictions of $200 crude oil and key policy makers’ autumn predictions of a pending global economic meltdown. He points out that oil’s failure to reach $200 a barrel — it is now sitting in the low 70s after collapsing from $145 — is suggestive that the current economic gloom will not reach apocalyptic proportions. There is a good probability that Callaway is right — in the short term.