The Free Market Votes: Still No Change We Can Believe In 62 comments
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A great column in Business Week captures the free market response to efforts of the past seven weeks to create a new New Deal. As Ben Steverman wrote:
At least on Wall Street, the honeymoon is over for President Barack Obama.
Polls still show the President has strong popularity among the general U.S. population, and Obama continues to command power in Congress. But among investors, fairly or unfairly, there is griping that the new Obama Administration is at least partly to blame for the recent slide in stocks. Since Nov. 4, Election Day, the broad Standard & Poor's 500-stock index is off about 25%, and since Jan. 20, when Obama took office, the "500" is down 15%.
It's never easy to determine exactly why the stock market moves in a particular direction. … But BusinessWeek interviewed a wide array of investment professionals, and many said the first six weeks of the Obama Administration have soured their outlook on the stock market.
One of the key lessons from Steverman’s interviews was that uncertainty increases risk, which discourages buying. However, what Steverman doesn’t say is that highly interventionist government policies by their nature increase uncertainty, due to the inevitable arbitrariness and risk of political capture.
One elected politician (with a four-year term) or nine unelected judges with life tenure do not have the same self-correcting feedback loop of hundreds of companies competing in the marketplace every day, or millions of private investors in the stock market. That’s why centrally planned economies (even democratic socialists) will never be as effective as free markets in producing and allocating wealth.
On Wednesday, the president sought to reassure investors:
"What you're now seeing is profit-and-earning ratios are starting to get to the point where buying stocks is a potentially good deal if you've got a long-term perspective on it," Obama said Tuesday.
In response, the Dow and other indices have plunged 3% today. Investors are not impressed: The president clearly doesn’t know what he’s talking about.
Beyond the near-term imperative of consumer confidence and liquidity, if the rules of the American economy are permanently changing, then we will have higher taxes, lower growth, and lower returns to investing in US equities. Prospects for a 2009 economic recovery are now gone.
Investors are not being irrational to sit on the sidelines until this shakes out. As Steverman concluded,
The problem for investors is the long-term outlook has never looked so fuzzy. With the economy deteriorating, the credit crisis continuing, and the Obama Administration still formulating a response, few feel confident enough about the future to buy stocks. It may be quite some time before investors find a change they can believe in.
I’ve paid a personal price for prematurely believing we were near a bottom. In addition to my foolish optimism on Bank of America (BAC), during last fall’s stock collapse I also attempted to buy Berkshire Hathaway (BRK.B) after it fell: if Warren Buffett can’t find bargains in a down market, who can? However, BRK.B is down almost 40% since election day.
Our country is ruled by a caste of lawyers who are almost to a man (or woman) economically illiterate. They know how to write laws to redistribute wealth but don’t understand how that wealth is produced. They also write laws that make it easier for lawyers to extort money from productive members of society, and centralizing power to lawyer-politicians who use that power to stay in power.
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This article has 62 comments:
Social engineering (the process of Congress trying to achieve outcomes that markets will not) is what is responsible for the mess we are in now. As long as we continue to elect economic illiterates to the White House and Congress, capitalism an Demcracy will continue to suffer.
It would be nice if the American public would wake up some day but after more than 40 years of public financing of education, there are few around that are smart enough to recognize they remedies even if they did collectively wake up.
It's price to earnings ratio, Idiot Obama. This is the clown we have at the wheel of the clown car, driving his band of finacial illiterates around. Ah, but that it were only true- bad, but not calamitous.
Joel, you summarize perfectly:
"Our country is ruled by a caste of lawyers who are almost to a man (or woman) economically illiterate. The know how to write laws to redistribute wealth but don’t understand how that wealth is produced. They also write laws that make it easier for lawyers to extort money from productive members of society, and centralizing power to lawyer-politicians who use that power to stay in power."
One quibble- some perhaps many lawyers are not socialists, they want to keep the money they earn. This particular lot of politicians however are as far left as Marx or Lenin. They are bent on the destruction of achievers, and the acquisition of power, no how many lives are ruined in the process.
Great article.
The only sector that seems to not be plagued with uncertainty right now is monetary metals. After all, future dollar devaluation is as close to a certainty we have right now... although the timeline for it is still fuzzy.
The purpose of money is to facilitate trade and production. Having a private central bank owned by the banks does not support that. Corporations have nothing but self interest.
However due to that illiteracy, even baby steps towards another system are highly unlikely. We're probably stuck with the self-enriching, fractional reserve lending, interest consuming system that we have.
It is not real hard to see that wasting precious resources on failed institutions and wealth reditribution are not viable answers. Apparently even wizards like Geithner cannot see that bialing out AIG again just promotes more shadow banking and the money goes directly to JPM as they hold the other side of many AIG diravative bets. This makes it a total waste of tax payer money and they will all fold in the end. Even Citi is not worth a valueless US $ any more - Again the market has voted..
A close friend just had his company closed after 60 years in business The banks wanted to work with them and extend their debt, but bank REGULATORS said no. Poof hundreds of jobs gone. Congress says banks should lend, but bank officials will not allow it. What a screwed up system.
Until the clowns in Washington let the markets do their job, while they provide help for those Americans most at the mercy of this economy uncertainty will contimue to reign and put a damper on any recovery of the stock markets or the economy as a whole.
Anyone interested in seeing where your tax dollars are being wasted by the stim bill can check .www.stimuluswatch.org/...
On top of that, this recession looks worse than the one Reagan faced in 1981. Historians rank it among the pre-WWII recessions. For 100 years before WWII, the USA had a bad history of serious recessions every 10-15 years. It is no accident that the USA ascended to superpower status only after we eliminated those ugly recessions.
Wasn't it deregulation that screwed things up so badly in the first place? I'm sure you don't think so...
You don't offer a viable alternative solution...more of the same.
And Wall Street voting with their feet & money after some Obama remark? They never did this when the previous Dubya told time in and again 'The fundamentals of the economy are strong'.
Years ago anyone who was a bit 'economically illeterate' could see the US economy was only castle of sand. Castles of sand have a habbit of survinving until the next tide comes in, any idiot who understood how the US economy worked could see that.
When your building blocks are made from debt, your debt levels rise always faster compared to your profit growth, how can you expect to live in a castle made from stones?
On Mar 05 04:45 PM akapital wrote:
> Wait, so we need more de-regulation so we can give Wall St. carte
> blanche and yet another chance to screw things up?
>
> Wasn't it deregulation that screwed things up so badly in the first
> place? I'm sure you don't think so...
>
> You don't offer a viable alternative solution...more of the same.
Wow. This is one of the most concise and accurate statements I have read in some time!
There's some optimism that the tax hikes won't be so bad...the stimulus might work (these people generally haven't actually read any history about the New Deal), or thinks just might 'fix themsleves' soon.
We won't be at a true bottom until everyone has given up hope.
Watching both Obama and our politicians, I got a strong impression that they really do not care about financial markets and/or state of economy. They are just living in denial of the reality hoping that somehow thing will come to "normal", i.e., the 1990s status quo is preserves. Unfortunately, the chances for this are between zero and none.
The talk of this lawyer caste as the ruling class in America really reverberated with me. It really seems like this society favors those that are the most proficient at understanding, creating, and skirting the law.
We are in the current depression because hundreds of thousands (a least) of bankers and brokers and CEOs, and CFOs (many paid millions of a dollars a year because they were considered "geniuses") bought crappy worthless bonds and derivatives; and millions on "main street" bought houses for 200% to 600% of their historical price.
In real life, half of investors are thieves and liars, and the other half are fools. On main street, all car-dealers, realtors, lawyers, etc are theives, and the average home buyer clearly is a fool.
I agree that it is stupid to bail out the banks. They ought to be allowed to go bankrupt and the top 100 officers at each bank should be jailed at Guantanamo and "water-boarded" for failing their fiduciary duties to their stock and bond holders.
However, the last 30 years have shown that we need to bring back all the governmental regulations like Glass-Steagal that the Bushies abrogated. And if the government cannot finger out how to adequately regulate a certain class of derivatives, then it should be made a crime to sell that class of derivatives.
These are the same geniuses that thought risk correlation [Gaussian Copula formula used by traders for CDOs based on CDS historical data] was a constant (when it really was a variable)?
www.wired.com/techbiz/...
Throw those bums out on their keisters!
Who cares what those losers think anyway? They're failures at risk accessment...
Yes free markets are terrible at producing wealth, which is why Cuba and the Soviet Union are examples of glittering utopias, whereas the Reagan economic boom lasted "only" 25 years.
But of course you are absolutely right that everyone else is a fool ... except you.
On Mar 05 04:34 PM xsellside wrote:
> Bush was the wrong Republican and Obama is turning out to be just
> wrong, period. Would McCain/Palin have been much better? Please.
> What we have is a leadership VACUUM. How about we try to extract
> some DNA from the corpses of Lincoln, Jefferson, Roosevelt (either
> of them), and Washington and clone them? It’ll be like Jurassic
> Park, expect with dead presidents.
see also www.hulu.com/watch/608...
On Mar 05 04:57 PM Reinko wrote:
> I completely disagree with most other commentors; Not only lawyers
> are economically illeterate, this goes for most US economists too.
>
>
> And Wall Street voting with their feet & money after some Obama
> remark? They never did this when the previous Dubya told time in
> and again 'The fundamentals of the economy are strong'.
>
> Years ago anyone who was a bit 'economically illeterate' could see
> the US economy was only castle of sand. Castles of sand have a habbit
> of survinving until the next tide comes in, any idiot who understood
> how the US economy worked could see that.
>
> When your building blocks are made from debt, your debt levels rise
> always faster compared to your profit growth, how can you expect
> to live in a castle made from stones?
interkulti.eu/Junglela...
You claim that there is self corrective mechanism in the market that deliver in a fast pace unlike politics . That must be why the fraudsters like Madoff survived through multiple presidents.
It must have been the self correcting mechanism they gave bonuses and massive salaries to CEOs for bankrupting companies. The more corrupt ones got higher incomes.
The corruption of rating agencies must have been part of self corrective mechanism too where the bigs learn how to fudge numbers.
The massively corrupt predatory lending schemes brewing must be part of these self correcting mechanism where the market corrected itself to collect by fraud.
As for your claim regarding Obama's remark to be the cause today's fall after a rally yesterday, to be part of genuine nonsensical gems that the street spews regularly and it is not unique.
This is false dilemma. The author is offering us only two choices: a free market or a centrally planned economy. This is rhetorical nonsense.
There are no completely free economies, if by that one means no government intervention in the markets. All governments intervene in a variety of markets in a variety of ways. For instance, by definition, they claim a monopoly on legal and security markets. Are the free marketers and libertarians really proposing private armies, private police forces, and private courts? I know some who do, but such silliness does not merit a response.
On the other hand, there are innumerable government/market combinations that do not constitute centrally planned economies. Would we have had a centrally planned economy if we had simply regulated the credit default swap market? I think not, but such a regulated system would have been better than the "freer" one that we had.
If people want to keep offering false dilemmas about the best sort of society/economy, then that is their right, but it is also incredibly disingenuous.
We are supposed to doubt Obama because panic driven investors sold on a statement he made about P/E ratios. The guy was dealt the worst hand imaginable; give me a break.
Free markets aren't efficient when they are driven by borrowers lying on loan applications and hedge funds using bogus accountants.
Instead of innovating in engineering and science to create something tangible, some of our brightest people spent the last few years carving up crappy loans based on false information and using horrid risk models to justify selling bundles of them. We let used car salesman run some of our most prestigious financial institutions and left people that really understand risk and leverage on the sidelines.
> Your theory that the "free market' is the most accurate evaluator of value and is truly contra-factual. It is down right ludicrous to say that un regualted "free markets" are effective at producing wealth<
Unfortunately, the author is very confused.
The major problem responsible for the present financial and economic catastrophe was not that there were too few regulations. The real reason that the already existing rules and regulations were ignored, never enforced due to totally corrupt US political and legal system.
The case and point is the Madoff case. It happened only because the system has failed to monitor, investigate and enforce the existing rules and regulations. It is not a secret or a mistery that he has defrauded his clients and stole huge anount of money and nobody at SEC abd DOJ has done anything to stop him.
After all, he and his family and his associates are free and enjoying their loot. The same is going for Standford and the majority of the corporate America allowing their Boards and management looting corporate treasuries at-will and impunity.
The Bottom Line:
the free-market system does not operate as a "Wild West". No, it very successful in the environment of honesty, integrity, fairness and compasion for the fellow man. Success is rewarded and failures are free to fail and disappear.
I work in finance, I've taught economics, I've testified many times about free-market health care, and I've engaged in many free-market debates. I agree; it seems the entire administration is economically and financially illiterate.
And yes, many of us are scared. I've been selling stocks (into cash, gold, silver, TIPs, other) periodically for over a year. I sold more this week. And exactly for the reasons you cited. Over the last 15 months I've lost money due to my own fault, to be sure, but my most recent regret was giving the new administration the benefit of the doubt. My bad. Learned another hard lesson.
Excellent piece. Keep it up.
Glitch?
A lot of good comments BTW
>woman) economically illiterate. They know how to write laws to redistribute >wealth but don’t understand how that wealth is produced.
Au contraire, ever since Reagan & Regan, the lawyers have very carefully crafted the laws at the behest of those who imagine that they produce the wealth without assistance from the public sector to insure that the wealth percolates upward and out of the reach of the government. They understand all too well that the wealth produced within the private sector is a result of both private and public efforts and they do all they can to prevent the public, the commonwealth, from receiving its fair share. It is a very calculated political strategy that has allowed productivity to increase while allowing median income to decrease. The lawyers are but one professional guild in the service of the elite and they are aligned and co-opted by the elite. Although they are nobody's fools, they are neither in control of the horizontal nor the vertical. Others control those knobs.
canadafreepress.com/in...
On Mar 05 04:57 PM Jengirl wrote:
> Great article. You really hit the nail on the head with that last
> paragraph. I have wondered for so long why no one complains that
> there is Washington is run by lawyers with zero financial sense.
> Now, what do we do to fix that? Everyone seems happy with the current
> flock of scumbags.
Sounds like you're being bearish.
Welcome to the club.
Sadly it takes a few or more serious hits to your portfolio for this to happen. This Redistribution of Wealth you talk about is really theft because it is redistributed unfairly and often in secrete. For the well and connected they not only get to keep their jobs, but are bailed out with bonuses. The little guy working at xyz gets a puny tax break, a pat on the back, and is asked to stick it to the "rich", who are really the entrepreneurial/middle class.
** Welcome to Depression 2.0 ***
All your farms are belong to us!
As for investing in stocks:
He who dies with the most toys wins.
We need fair play and accountability yesterday.
I suppose when everyone is starving somehow the rich will have all the food too right. You see we have lots of resources only our fascist govt continues to reward those who least deserve it. The uneducated, the lazy, the fat wall street bankers, big business with powerful lobbies that fund the campaigns. Joel West article should be interpreted in a vacuum. We have been moving away from free markets in this country slowly but surely for over a hundred years. Even our currency isn't a free market. The problems the econonmy faces are the result of the government taking over industries, manipulating the currency, allowing banks to become way to large to the point of (TOO BIG TO FAIL) thereby introducing moral hazard, etc...
Sether after you starve how much should the funeral home charge for your cremation or burial plot. Should they charge $50, $100, by your body weight, by the size, by your political allegiance. Perhaps they should charge you buy the average income you earned over the last five years. In the end if they charge too little they will either be forced to go bankrupt, bury you with 10 other dudes, or let wild animials eat you. Perhaps the government will pass a law making hard for little funeral homes to compete by passing a green house gas law on cremation emitions once the large guy has a patent on a special process already preapproved by the govt.
Economic laws are reality. Trying to distort how resources are allocated by law, military force, etc.... doesn't change them or the reality. There are limited resources. And the when governments get involved in how the resources are allocated by acting as more than a referee they are usually waisted and squandered them a much higher degree than a free market. Keep in mind free markets require government to keep the markets free. So this isn't about anarchy.
So back to my point. How much should your casket cost? The invisible hand of the free market knows what that price is at all times as it balances supply and demand.
When governents or banks increase demand artificially by debt creation this causes and oversupply situation when the artificial demand is removed. Its really that simple. Your beloved Obama and BUSH too have been trying to force high prices to stay high even though the peak prices were only due to short term demand due to increasing debt levels. The only way to keep the prices high is with more artificial debt creation demand.
What happens when their is no capital left to tax...........YOU STARVE.
But not me cause I understand how things work.
That is exactly what is happening. The war on the middle class has now reached a fever pitch. Either the middle class will dissapear and we will end up with a two class society with the poor and desperate on one end and the powerful-rich loyal socialist party members on the other.....OR the middle class will revolt.
I'm not advocating either but I do think one of the two options above will happen. I wonder where the next truly free country will be? Hopefully it will stay here.
1) Decide how to spend their capital.
2) Price is allowed to rise and fall so supply and demand are balanced.
3) Supply is not controled by one monopoly
4) Consumers have freedom of choice.
5) You have a government that creates the markets with a system of rules and laws that everyone operates under. Such as you are not allowed to use your gun to demand the price you want.
Here's an example. My son wanted Frank the Combine from the movie cars. Pixar/Disney never produced Frank. So I went on EBAY. There was a guy making producing his own version of Frank! The consumer was FREE to demand frank. The producer was FREE to produce frank. The price was FREELY agreed upon on how much frank would be exchanged for in terms of dollars.
Free markets would have long ago done away with those Banksters. Only the banks are so regulated they are never allowed to fail unless they all fail together. Plus lets face it. The banks contribute more to political campaigns than any other industry. Fannie Mae Freddie, etc... The government and BIG Banks have been in league for a long time. Not really a free market. Closer to Fascism.
OBAMA played his part in the melt down too. He was a big pusher of passing laws that forced banks to loan to risky people. Also his doom and gloom speached over the last two years about how everything was BAD and DIRE did their fair share in talking this economy into suicidal state. He promised that he could make it all better because he had HOPE. I hate to borrow this line cause it is really oversimplified. But HOPE is not a Strategy. Its very obvious he has no idea what he is doing. If he was a smart guy (even and idealist with some pragmatism) he would have tread lightly and used his oratory skills to calm everyone. He would have stopped all this talk about doom and gloom and calmly and slowly reformed government for the good. Instead he goes around asking for trillion here and trillion there because the sky is falling. We need a new program for this or that. That is not reform. I mean this guy on one day says his administration is going to put together a sound well thought out plan that will work......then four hours later he says we've got to pass this plan now because there isn't any time left. A vote against the plan that no one has seen would set the country back. He is nothing more than a talking puppet on a string.
Anyone who think Obama is any different than Bush is just kidding themselves. The reason Bush's ratings were so low was because he was a democrat in sheeps clothing. Conservative didn't like him and neither did liberals. Liberals should have loved him. Anyhow when people blame the troubles we have now on the free market it is laughable. Was it freedom's fault or the markets fault. Its neither. It was fraud, political interferences funded by special interest, fascism, the FED, fannie mae and freddie mac, international banking monopolies that were too big to fail, etc...
On Mar 05 07:12 PM User 370661 wrote:
> Nothing new here......I see this every night on Fox news. How about
> describing how you would fix this market with your free market idealism.
> Lehman Bros. was allowed to collapse and it crippled wall street.
>
>
> We are supposed to doubt Obama because panic driven investors sold
> on a statement he made about P/E ratios. The guy was dealt the worst
> hand imaginable; give me a break.
>
> Free markets aren't efficient when they are driven by borrowers lying
> on loan applications and hedge funds using bogus accountants. <br/>
>
> Instead of innovating in engineering and science to create something
> tangible, some of our brightest people spent the last few years carving
> up crappy loans based on false information and using horrid risk
> models to justify selling bundles of them. We let used car salesman
> run some of our most prestigious financial institutions and left
> people that really understand risk and leverage on the sidelines.
DJIA on January 20, 2001: 10,587.59 (previous close)
DJIA on January 19, 2009: 8,281.22 (close of day)
On Mar 06 01:58 AM Elliott wrote:
> Under Bush, the DJIA lost 6,000 points. Under Obama, the DJIA is
> down 1,500 points. Therefore, using Joel West's logic, the market
> hates Bush 400% more than Obama.
thank you. the last paragraph precisly names a huge problem. shakespeare said it long ago. kill all the lawyers first. the founding fathers gave us a constitution and bill of rights written in the plain language of the day for the common man. i do not need the low lifes to interpret any of these documents for me. shall make no law, shall not be infringed are not hard concepts.
a man who represents himself in court has a fool for a lawyer? sadly true but it is because of the perversion of lawyers. i know what is means.
sether
i like target shooting and varmit shooting. i have made myself ready to help those who ask and to deal with any who would take by force. your lunch is waiting. come and get it. no more free ride for your ilk from my labors. i retired early so you and obahahahamahahaha can sponge off someone else. those chocolate covered raisins he promised are really goat turds but go ahead eat your fill.
> Bush was the wrong Republican and Obama is turning out to be just
> wrong, period. Would McCain/Palin have been much better? Please.
> What we have is a leadership VACUUM. How about we try to extract
> some DNA from the corpses of Lincoln, Jefferson, Roosevelt (either
> of them), and Washington and clone them? It’ll be like Jurassic
> Park, expect with dead presidents.
Hee Hee; Rock On With The Dead Presidents.
However, when they actually started to discuss rationally the Root Causes and Corrective Actions they would be labeled "Kook", "Fringe", "Dark Horse", "Unelectable", "Loony", "Wanting to go back to the past", and probably "Crank".
We had an option for some rational debate but fantasy and frilly words were easier to sound byte.
I wish more would have debated Ron Paul rather than dismissed him.