If the truth sets people free, why is America becoming less free on the heels of twenty-five years of “free market capitalism”? Granted, banks could not do every last thing they pleased (although hedge funds pretty much could). But banks did receive enormous breadth of latitude for self-regulation. The theory was that the free market profit motive would facilitate naturally functioning checks and balances. Instead, the whole world got a taste of what happens when virtue sits on the sidelines while greed is empowered as the referee.
Free markets and their attentive politicians are always serving up something new. May’s service — an 872 point Dow Jones blowout — clearly dampens recovery hopes. Is it right that financial markets impact the underlying economy so remarkably? Could a different financial architecture help mitigate this problem — an architecture that does not shortchange honorable merit when it comes to financial rewards?
David Callaway is right: This nation needs more than grilled millionaire on the menu. While intelligent reforms to executive compensation are essential — sweeping reforms and not mere dabbling — we must do more than audit the menu. It is time to reform the discriminatory nature of the meal club as well. Compensation guidelines are not enough. We must alter the means by which investment rewards in public markets are acquired.
Will the current bounce last? Will analysts keep setting the bar low to help stocks rise? Will beating bad numbers remain the game by which stocks are priced? The future level of stock market indices cannot be predicted because the calculations that will go into future market manipulations are yet unmade.
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.
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?
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.
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.