The Wall Street Rebound

Alan Greenspan carries a lot of the blame for last year’s economic collapse. He fought and stopped the Commodities Future Trading Commission from regulating the eventually $600 trillion dollar derivatives market. There was a good article in the Washington Post on the subject:

“In private meetings and public speeches, Greenspan also argued a free-market view. Self-regulation, he asserted, would work better than the heavy hand of government: Investors had a natural desire to avoid self-destruction, and that served as the logical and best limit to excessive risk. Besides, derivatives had become a huge U.S. business, and burdensome rules would drive the market overseas.”

There was also a mountain of banking deregulation that compiled during the almost 20years of his watch as Chairman of the Federal Reserve.  Banks were given the ability to shop for their own private regulators, and allowed to consolidate with securities firms and insurance companies into massive conglomerates.  There is an extremely strong case to question the libertarian approach to the economy that he endorsed and nurtured during his tenure.

I’m no socialist – I believe in the inherent value of competitive capitalist markets.  But I also believe that capitalistic institutions do not inherently act in their own long-term self-interest.  And if you’re totally rational like me (chuckle chuckle) you should be supporting Obama’s regulation reform.

I also supported the economic stimulus. The only way to restore confidence in those failing financial institutions was to back them by the government.  Letting them collapse just would have been far too destructive.  A real cut off the nose to spite the face kinda move.  It was also the only way to make them accountable for their roles in the collapse, though even with direct government oversight this is proving very difficult.  Obama and Timmy G can’t even  reel-in the executive bonuses.  Instead of ‘bonuses’, they should call them ‘guaranteed completely unrelated to performance end of year pay.’  I find it funny though, that Republicans don’t seem to realize how much the stimulus package got cut down from its initial form.  My favorite financial columnist, and Economics Nobel winner, Paul Krugman wanted a much larger package, with the assimilation of rescued institutions into some sort of controlling government body.  But efforts from GOP senators and representatives managed to strip stimulus money away from all sorts of things including public education!  They wouldn’t even let Obama subsidize building schools.

But what am I rambling about?  AH YES! the Dow made it over 10,000!  It’s somehow managed to jump up %53 since March.  What the hell does this mean?  Is the economy saved?  Has the ship been righted?

According to the analysts I trust, the answer is a resounding “No”.

Robert Reich contributed this to the conversation:

this is all temporary fluff, folks. Anyone who hasn’t learned by now that there’s almost no relationship between the Dow and the real economy deserves to lose his or her shirt in the Wall Street casino.

…With such horrid employment numbers, Wall Street figures the Fed will keep interest rates low for some time, and continue to flood the economy with money. That’s good news for the Street because it means money stays cheap — and with cheap money the Street can make lots of bets on almost everything under the sun and moon. As a result, the Street’s earnings are way up. But this, too, is temporary. At some point the Fed is going to worry about inflation and a falling dollar.

There have been a few financial watchdogs claiming that their numbers show that we’ve turned the corner.  But Krugman is quick to shoot down the hope.

in a zero-interest rate world — the three-month rate was .066% last I looked — especially one that’s suffered from a collapse of the shadow banking system, conventional indicators don’t mean what they usually mean. Increases in the monetary base aren’t especially expansionary. The yield curve more or less has to slope up, even if no recovery is expected.

So let’s recap.

First I rambled about my vague, still in the early-stages of educated, economic opinions.

Second I put a few links to intelligent people’s blogs who are eager buzz-kills on all this wall street hoopla.

-Dick Harvey