Friday, October 10, 2008

Exuberance, Panic, & Stupid Newspaper Headlines

One of the biggest jokes, especially as the big investment houses disappeared, credit started to dry up, and Wall Street first slid then free fell over the past few weeks, was a book published about a decade ago, with the ridiculous title, Dow 36,000. At a time when it seemed the stock market was the place to make yourself all sorts of cash, rather than a vehicle for the steady exchange of capital and liquidity for corporations, and as there seemed to be no reason to bad-mouth a steadily rising stock market, the book was well-timed to cash in on the idea that the only possible way the stock market boom would end would be some kind of leveling of at around, you guessed it, the 36,000. Now, part of the argument of the book seemed sound, relating as it did the way share prices were determined, as well as the capitalization and net worth of the company in question, there did seem to be an undervaluing, overall, of commodity pricing as well as overall value. The problem with this argument, however, was that business people try to be conservative in a good way. Sound investors attempt to keep a worse-case scenario in mind, as well as distrust all but the gloomiest information on any company. This is a good way to protect yourself, and the money others are entrusting to you for safe-keeping.

The stock market boom at the end of the 1990's, and it's steady recovery after the recession and 9/11 attacks made even the most skeptical and conservative institutional investor give pause to the possibility that there was something to the idea of an ever-expanding market.

Now, of course, we know that much of this was fueled by leveraged investments, the use of trading various debt commodities as if they had real value (incidentally, this is where a good philosophical background might have come in handy, because there is a distinction between something that is potential and something that is actual - the difference being that something that is potential doesn't exist yet and may never exist).

Yet, the blind exuberance of the boosters and hucksters of our recently-deceased gilded age has suddenly been replaced not with a return to the sober days of careful thought, skeptical investing, and a traditionally conservative approach to matters of finance. Rather, we have this:
The End Of American Capitalism?
By Anthony Faiola
Washington Post Staff Writer
Friday, October 10, 2008; Page A01
The worst financial crisis since the Great Depression is claiming another casualty: American-style capitalism.

It is all well and good to be concerned about our current financial woes. It is all well and good to be concerned about what will happen over the ensuing weeks and months as the fall out from various actions and inactions, some appropriate and some not, weave their way through the fabric of our societies.

This kind of thing, however, is so much crap in a leaky bucket. It is as risible, ridiculous, unrealistic, and nonsensical in its own way as Dow 36,000 was. It is not just fear-mongering, nor is it just succumbing to the rampant panic that seems to have gripped so many many in governments around the world, in financial institutions, and in the elite press that covers this arcana. It is a blindness to the complexity of the issue before us, a surrender to dread and despair without warrant, or even any evidence.

It is important to remember that it has been about a month or so since this whole crisis began. When Bear-Stearns and Lehmann Brothers Banks both went the way of the Pony Express and the Oldsmobile, there was certainly reason for concern. The large investment houses seemed incapable of dealing with the reality that they had staked so much on something that, in fact, did not exist - the value of mortgages that had, for the most part, become worthless. An easy solution might have been available, had not everyone from the President on down done the one thing no "leader" should ever do if a crisis of any proportion brews - panic. The $700 billion dollar "rescue" plan now seems so quaint all the Sturm und Drang over its passage seems quaint.

Even as the Nikkei Index dropped another 10% yesterday, and the Dow is sure to continue to shrink, we are not served by panic. The kind of nonsense printed in this article in the Post certainly shows that despair is just the flip side of optimist, and just as blind, just as ignorant, and just as easily brought in to being.

Virtual Tin Cup

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