Home > 2. politics, 3. et cetera > My view: more doom and gloom in the markets

My view: more doom and gloom in the markets

September 24th, 2008

1929 crash

  1. If you are ‘too big to fail,’ you are ‘too big to go unregulated.’
  2. The bailout plans being discussed now are all *terrible*

    • they reward companies that were recklessly over-leveraged
    • they reward homeowners who were recklessly over-leveraged
    • they penalize any people or companies that did not participate in the reckless borrow & spend tactics
    • they substitute lack of accountability in the private sector for lack of accountability in the public sector
  3. Short sellers provide accountability to companies – they aren’t the problem, they are part of the solution
  4. As we focus on government bailouts, we are missing the fact that Bank of America’s has put US tax payers on the hook (through FDIC insurance) for a catastrophe in Merrill Lynch’s portfolio
  5. This bailout is going to pale in comparison to what happens when there is a run on the mutual funds. More on this later, but look up “embedded tax liability” and you’ll get a peek at what will almost certainly happen as baby boomers reverse the trend from net contributions to net disbursements in mutual funds
  6. To all those who repeat “focus on asset allocation because markets always go up in the long run”: don’t forget that the “long run” has meant 25 years in at least one case in our history
  7. Neither Obama nor McCain or any other political leader has a clue what do right now

Unfortunately, I do not have a solution to these incredible problems. I do believe that acknowledging these problems sooner rather than later is critical in containing the damage of twenty+ years of living beyond our means as a country.

Have a good day!!

2. politics, 3. et cetera ,

  1. Tyler
    September 24th, 2008 at 16:39 | #1

    Interesting insights Weiks. With respect to your comparisons with the 1930’s, how much do you think that today’s speed, information flow and trading technologies change the comparative landscape. Do you think that these factors will exacerbate the problems or do you think they might serve as a life-raft that protects the market from a similar three decade stagnation?

    Also, while your analysis tracks the US market, isn’t today’s stock market a much more global, diversified and potentially durable beast? I mean if a large domestic company went down in the first half of the 20th century the seismic tremors would be much greater than today wouldn’t they? I submit that the fall of something like GM today could be much more easily “absorbed” by the market, investors and consumers than it would have 50 years ago. Is that accurate?

    Anyway, no doubt that the picture is not a rosy one…especially for all those newly minted MBA’s looking for I-banking jobs!

  2. September 24th, 2008 at 18:54 | #2

    Tyler,

    Let me address your two points.

    Under the current circumstances, information technology makes the problems worse for two reasons. First, investment banks have become processing machines that work to their own advantage and against the common person. Second, control over communication is still highly centralized–so that works to the advantage of vested interests. And these vested interests prefer to defer the day of reckoning as long as possible (e.g., maintain the status quo.)

    As for globalization, I think that it raises the stakes. When markets in different countries are working in different cycles, they can compensate for one another. But economic integration is causes the cycles to converge. Hence, a global, synchronized recession could be far worse than a mere national one.

    There is a “hail mary” pass option that globalization affords. As Europe and US have increasingly aging populations, we could try to bring the younger Arab countries into the fold. But wow! is that a proposition fraught with political issues.

    Oh, my heart pains for the poor recently-minted MBA. They are truly the victim of this horrible ponzi scheme we’ve been living in for the past 20+ years!

  3. September 26th, 2008 at 01:59 | #3

    I am very much into the relation of the central banks and Federal Reserve as cause of the crisis.
    I appreciate the commentary I have found at Mo’thanskin;s Blog.
    From his “It’s the Fed, Stupid”:
    “When will Americans ever see that the President and Congress have no real control over over Wall Street and the Banking industry? Since 1913 when Congress authorized the Federal Reserve Banks (which is not a government institution) and gave the Federal Reserve Banks the unconstitutional power to create money in the form of bank loans (thus a debt based economy), the real control and regulation of the economy has been in the hands of the Fed, not Congress and certainly not the President (although if the economy is good the Fed let’s the President take the credit and if the economy is bad the Fed let’s the President take the blame). It was the Fed that created the housing bubble that has now busted by giving banks and mortgage companies free money to loan to borrowers who were not creditworthy, making CEO’s and brokers and salesmen very wealthy for a while until until the foreclosures started coming in. It is the Fed that regulates the banks, investment and mortgage companies, not Congress or the President, unless the Fed is abolished or radically reformed. Word to Barack Obama and John McCain, “It’s the Fed, Stupid!””

    And there’s the matter of the use of derivatives as related to the crisis.
    Please read the articles that are linked by my personal Google Reader page of shared items. There’s a link far down on the right sidebar of my Blog, http://bucky14621.blogspot.com.

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