What? Us Worry?
It is a
well-known Wall Street expression that “the market dislikes
uncertainty.” Yet, this has seemingly been forgotten, if it was
ever known, by Senator Chris Dodd (D-Conn) when he said “I'm
concerned that we may end up having to do that [nationalization], at
least for a short time,”
in order to bring stability to the nation's financial markets. Wall
Street reacted violently to this hint that the State may continue its
destruction of private enterprise in the United States and bank
stocks led the downward trend. The market recovered slightly by the
end of the day when a White House spokesman denied that the Obama
regime has any intention of taking over the country's banks. One of
NPR's “Marketplace” commentators reminded the show's audience of
the old Wall Street adage, but seemed unaware that it is largely the
acts of the Federal government that has made the nation's
stockholders so jittery.
And that,
indeed, is what is behind most of the recent volatility in the stock
market: uncertainty about what actions the Federal government may
take to try to correct the current economic crisis. And why
shouldn't the markets be unsure of what lies ahead? In the last year
we've seen the State intervene to force the sale of Bear Stearns to
JPMorgan Chase at fire sale prices. This was done, “to avoid
economic turmoil”, instead of allowing the company to go bankrupt
so that the market could efficiently reallocate the mismanaged
assets. Yet, only a few months later, the same wise men who had
declared Bear Stearns to be “too large to be allowed to fail”
decided that Lehman Brothers did not meet that standard and that
company was allowed to go under. The Lehman Brothers bankruptcy had
been preceded by the Federal takeover of Fannie Mae and Freddie Mac
only a few days earlier. These actions took place after several
months during which former Treasury Secretary Henry Paulson had
repeatedly said that there would be no more Federal bailouts of
financial firms. Of course, there's no reason to think that this say
one thing, do another, policy of the Federal government might have
led to a few Wall Streeters wondering what was going to come next: no
reason to think that the State's arbitrary actions might introduce
some uncertainty into the calculations of the nation's financial
managers.
Then came the
infamous Paulson Wall Street bailout bill, since renamed TARP, which
was originally to use government funds to purchase so-called “toxic
assets” from banks and other financial institutions that had gotten
overly involved in the sub-prime mortgage market and were now losing
money in the wreckage left by the implosion of the housing bubble;
itself a result of Federal government mismanagement of the economy.
However, only a few weeks after the Congress was stampeded (through
the use of a never-ending stream of doom and gloom statements coming
from Treasury Secretary Paulson, Federal Reserve Bank Chairman Ben
Bernanke and large numbers of media commentators) into agreeing to
spend some $700 billion, to rid the system of toxic assets, Mr.
Paulson decided that the money would best be used to purchase equity
stakes in various large financial institutions. The Secretary
justified this move by saying that it was the best way to get the
credit markets moving again. Certainly, Wall Street has no reason to
be concerned about the policy flip-flops of a man who, at that time,
had virtually unlimited power over the financial markets of the
United States: no reason to be worried about arbitrary actions by the
Secretary of the Treasury, no matter which party is in power in
Washington.
Then came the
debate over whether or not to bailout the Detroit automakers by
providing them so-called “bridge loans” which supposedly would
allow them to restructure themselves and become “financially
viable” once again. We were told that the Detroit companies could
not be allowed to go bankrupt, which would have been the best and
quickest method of reallocating mismanaged assets, and that the
Federal government would have to provide them the loans. At first
the lame-duck Bush regime opposed this course of action, but
eventually, it caved-in to mounting political pressure from various
Midwest state governors, the UAW, and the auto company executives
themselves. This backing and filling and posturing by all involved
is no reason to think that yet more uncertainty was introduced into
the minds of those who hold and manage stocks. After all, simply
because it is no longer possible to tell what the State is going to
do in regard to the economy is no reason to be concerned. There's no
reason to think that the many changes in policies and methods of
dealing with the economic crisis was the result of State
functionaries throwing things at the wall in hopes that something
would stick. No reason to believe that the Washington wise men had
no idea how to manage the use of the State's power to intervene in
the supposedly free American financial marketplace. No reason to get
a little jittery if one had significant amounts of money tied up in
the financial markets.
The
recently-passed economic stimulus bill is another example of
irresponsible Federal meddling in the marketplace and is the economic
equivalent of pouring gasoline on a fire to put it out. By now, the
combination of the Federal Reserve's acquisition of approximately
$1.5 trillion of bad assets, the $700 billion TARP program, the
nearly $800 billion Obama stimulus package, the potential $5 trillion
liability that came with the nationalization of Freddie Mac and
Fannie Mae, and the as yet untold billions to be poured down the
drain of the Detroit automaker “bridge loans” add up to a
significant fraction of the nation's GDP of $14.3 trillion. However,
to listen to the Statists there's no reason to be concerned about the
size of these liabilities, no reason to wonder whether or not the
U.S. can pay the bills that our all-wise leaders in Washington are
running up. There's certainly no reason for the folks on Wall Street
to be concerned about further arbitrary actions by the State: no
reason to think that President Obama may not find it politically
convenient to extend his unilaterally imposed pay cap for Wall Street
bankers to other classes of employment or otherwise exercise the
State's nearly unlimited economic powers. No, the State never
mis-uses its power.
And yet,
seemingly none of the highly educated fools who are running the show
in Washington seem capable of putting two and two together and
realizing that it is the State's actions which are largely
responsible for the current economic downturn. However, they can be
forgiven for being so blind publicly, as they know that admitting
their responsibility would lead to public demands that they stop what
they are doing. Instead of admitting responsibility, the powers that
be have embarked on the largest disinformation campaign seen in
recent years. We are told on a daily basis that the crisis is a
result of the failure of the free market, that the only solution is
to give more power to the State, that consumers must resume their
profligate spending and continue running up those credit card bills,
that we must continue to loan money to Detroit, and that the State
must be allowed to place caps on the amount of money a person may
earn should he or she decide to become a banker. The truth is buried
in an unceasing torrent of lies and distortions, about both current
events and history, particularly the history of the Great Depression.
The State is held up as the source of all wisdom and goodness. We
are told that Federal budget deficits no longer matter, that we must
“get the credit markets working again” by spending enormous
amounts of money that we do not have and will not be able to repay.
No, there's absolutely no reason that the stock markets should be
concerned about the State's continued exercise of its ever-growing
power to arbitrarily intervene in the workings of the market.