STOCK MARKET CRASH OF 1929
STOCK MARKET CRASH OF 1987
I'm getting the same feeling about this stock market situation as I did when 9/11 occurred. At the time I felt like, "Wow, this must be what it felt like when Pearl Harbor was attacked". You knew that you were experiencing an event that would be in the history books of the future.
The same type of event continues in the stock market today. We experienced this as a nation in 1929 and 1987. The 1929 event was cataclysmic and changed this nation forever with the subsequent Depression and the ushering in of the New deal policies of FDR.
We will apparently go through similar changes today, which will cause government to bring about policy changes that will change our lives, and our children's lives forever.
Luckily, this time we have Federal Reserve Chairman Ben Bernanke, an acknowledged student of the Depression, to guide us. In fact, one of his famous quotes is that we learned the lessons of the Crash of 1929 and won't repeat the mistakes that were made then which drove the nation into depression.
-------------------
http://www.irishtimes.com/newspaper/innovation/2008/1006/1222959318754.html
ON THE occasion of the 90th birthday of the Nobel-prize-winning economist Milton Friedman - celebrated at a symposium at the University of Chicago, in November 2002 - Ben S Bernanke, then governor of the US Federal Reserve Board, lauded Friedman and his longtime collaborator, Anna J Schwartz, for their seminal work, A Monetary History of the United States 1867-1960.
In this classic tome of American economic history, Friedman and Schwartz lay the blame for the Great Depression squarely at the doorstep of the Federal Reserve by arguing that, at the point of acute crisis, its tight policies caused the failure of more than 40 per cent of banks in the US and led to massive deflation.
At the very moment when capital should have flowed into the economy, they argue, the Fed staunched it and by its policies unleashed instead the pervasive suffering that followed.
Friedman's and Schwartz's insights about the role of the Fed contradicted the conventional wisdom at the time, but have stood up well. "This achievement is nothing less than to provide what has become the leading and most persuasive explanation of the worst economic disaster in American history," Bernanke said in his speech. He praised the book for its "development of historical detail" and for its "previously untapped" use of primary resources to craft its argument. "Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve," Bernanke said. "I would like to say to Milton and Anna: Regarding the Great Depression. You're right, we did it. We're very sorry. But thanks to you, we won't do it again."
-------------------
Unfortunately, Bennie Boy, that doesn't preclude you as the Fed Chairman and some combination of the Treasury Department and the Congress from making new and improved mistakes that will change this nation forever.
At the rate old "Helicopter" Ben is dropping money on the financial system, he's clearly due for a nickname upgrade along the lines of "C-130 Cargo Plane" Ben.
In seeking to steer the nations monetary policy since he took over from the equally incompetent Alan Greenspan, Bernanke has shown all the skills of a hallucinogenic, teenage diver would exhibit in his first foray down the highway in a high performance sports car.
All of these clowns were only too happy to sit back and watch the Greenspan "housing bubble" deflate when the only apparent losers were homeowners. Now that the blood has splattered closer to home, and by home I mean on the pin-striped suits of the bankers they serve, the crisis reached proportions requiring emergency actions.
And by emergency actions, I mean grabbing for the taxpayers wallet and the savings of middle-class Americans, as well as their children and grand-children.
All of these destructive events happened under the Fed's watch:
- The Great Depression, through monetary expansion of the 20's which burst in the 30's (sound familiar)
- The S&L crisis (sound familiar)
- Long Term Capital Management (a hedge fund, sound familiar) failure of 1998 almost crippled the financial system
- The dot.com bubble burst in the 90's
- The 90's easy money era under Greenspan, brought about the housing current housing bubble that just burst and is spilling blood all over the street
And as we can see, some of the events are clearly repeating. Maybe we should treat the Fed like a dog that continually pees on the carpet. Nah, too good for them.
The first responsibility the Fed has, and the only one the European central banks concentrate on, is inflation, Why is this?: BECAUSE INFLATION IS A THIEF. BUT WAIT THERE'S MORE.
- Inflation destroys savings making it impossible to save funds for life purchases like a home, college for he kids and retirement
- Inflation moves wealth from the poor and middle-class to the rich.
- Inflation distorts the economy by providing "easy money" to those who haven't earned it and since it is not "their own" money, they waste it on bad investments.
Think of people who were "flipping" houses and condos because of easy monetary policy. Where are those "flippers" now? Probably hanging out with the "day-traders" from the 1980's in some bar talking about the fortunes they made and lost.
- This economic distortion leads to subsequent unemployment, which affects the middle-class and poor disproportionately. Countries that have low inflation and solid economic policy tend to have very low unemployment (think Switzerland).
- Inflation allows governments to deficit spend. Borrow first, then print money out of thin air to attempt to eliminate or pay-back the borrowed dollars with cheaper dollars down the road.
- Inflation is a hidden tax on future purchasing power and the government spends the money in advance.
I don't even want to get into how the government distorts (hell, why don't I just say it - LIES ABOUT) the CPI figures released to the public. Why would they do this? To keep the public docile and many government payments are tied to the CPI. Think Social Security payment to grandma and grandpa.
It just seems like we get into some of the problems because the Fed also worries itself about economic growth as well. If someone can't handle one task very well, asking them to do two tasks simultaneously seems to be a stretch, right?
FROM THE NEW YORK TIMES, SEPTEMBER 30,1999:
In a move to help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders. The action will...encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans.
This step by the Clinton Administration, along with groups like ACORN and armed with provisions of the Community Reinvestment Act (CRIA), openly badgered and threatened banks with lawsuits (charging red-lining or racial discrimination) and with threats to block any future mergers the bank might entertain if they did not allow this type of lending to explode.
Combine this with the repeal of Glass-Stegall and the Graham-Leach-Blilley Act that the Republicans in Congress promoted allowed banks and Wall Street firms to run wild. They promoted the "casino" mind-set that we see in the market today that is dominated by short-sellers, hedge funds and other speculators.
The SEC under Chairman Christopher Cox has been almost as incompetent and possibly corrupt as the Federal Reserve. To allow short-selling with little or no restriction (no uptick rule), much less-naked short-selling (you don't even have to borrow the stock anymore) has allowed wanton speculation and wild, irrational trading that we still see daily. There are margin requirements to actually BUY a stock, but no requirements on the short-side. This is completely irrational.
Equally irrational and throwing more gasoline on the growing fire the SEC allowed investment banks to increase their profits by taking on more leverage (risk). We're suffering the consequences of that unwinding of leverage today.
I don't even want to scratch underneath the Federal Reserve and the SEC and get down the Federal Accounting Standards Board (FASB) and the mark to market rules that exacerbated the problem. If the above failure do not occur, then mark to market is not even an issue, in fact it's a positive.
So to review, we had:
- The GSE's (Fannie and Freddie) running wild
- The Federal Reserve provide the elixir of easy money
- Wall Street unshackled from regulators
- Government blessing provided by CRIA and the destruction of the regulatory walls provided by Glass-Stegall.
- Lowered mortgage underwriting standards
- Corrupt credit rating agencies violating the public interest
- Predatory borrowers AND lenders
And from our leaders we get finger-pointing, with neither side willing to look in the mirror and point the finger at themselves.
And then we wonder why Congress has a lower approval rating then the President.
From the fiasco of the first Hank Paulson-Ben Bernanke "rescue bill", to the subsequent new-and-improved Pelosi-Frank-Dodd-Paulson bill to the G-7 or 8 or however many clowns-stuffed-into-small-car measures there were, we've seen the market spit all measures back into the bureaucrats collective faces like a colicky new-born.
Is there any wonder why I think the following video would be an accurate depiction of the effectiveness of our leaders fiscal problem-solving abilities?
Nobody is arguing that some of these steps were taken with the best of intentions. Who doesn't want to own a home? In hindsight, now I know how I was able to qualify for a mortgage when--at the the time I applied--using some of the old-school underwriting standards, I was probably not the best candidate for mortgage approval.
But we didn't go for any of those exotic mortgages, using the rationale that if the terms sound to good to be true they probably aren't, we went for a traditional 30-year mortgage with a 10-15% down payment. So, we had some equity stake in the house. It wasn't given to us freely or too easily. People don't value things that are given to them as much as things they have to earn.
The unintended consequence was they devalued the American Dream of home ownership for everyone by turning it into something that was almost as easy to achieve as the prize at the bottom of a Cracker Jacks box. Thanks again, leaders.
NO MONEY DOWN, INTEREST ONLY PAYMENTS, NO INCOME VERIFICATION, NO JOB, NO PROBLEM--HECK, WE DON'T EVEN CARE IF YOU PAY THE MORTGAGE--WE'RE GOING TO PACKAGE IT AND SELL IT ANYWAY.
That's what some of the radio ads sounded like from some of these fly-by-night mortgage companies, and where was the Fed or any of the regulatory bodies when these spiels were flying around the airwaves. I know I thought, "How the heck are these guys going to stay in business?" Now we know, on the backs of Uncle Sam and his seemingly bottomless pit - the taxpayers wallet.
They've all collectively pissed on the American Dream of home ownership.
They've all collectively and continuously pissed on the faith and confidence of the public in our JUSTICE SYSTEM, OUR FINANCIAL SYSTEM, AND FINALLY, OUR ENTIRE SYSTEM OF GOVERNMENT.
My only question is when are we a nation going to say - NO MAS, NO MORE?
There's an election coming up, we have a chance to put our money (what's left of it) where our mouth is, so to speak.
I have to say, under the circumstances--if any incumbent gets re-elected to go back and FINISH THE JOB--then we do deserve the government we continue to get.
My advice to guys like Bush, Greenspan, Bernanke, Paulson, Cox and their newest best-est buddies in the Congress Pelosi, Reid, Dodd, Frank and others I'm sure I am leaving out should just quietly leave D.C., quietly go home and retire.
Don't write any books documenting your sorry-ass legacies.
Don't go out on any public-speaking tours, telling lies about what you did. We can see and feel the results better than you. We have to live with the consequences.
For all those guys, my enduring thoughts regarding their legacy can be summed up by former Tampa Bay Bucs coach John McKay's famous quote.
When asked about his team's execution during one of their many consecutive losses during their initial season, McKay replied, "I think it's a good idea".
SAME HERE.
I just have one simple question, just one. When do we get to this point, are we there yet?:
---------------------------
UPDATE-PAULSON EXPRESSES REGRET:
Washington (AP)- Treasury Secretary Henry Paulson on Thursday expressed regret for the many errors made that led to the biggest financial crisis in seven decades, but he insisted the administration is pursuing the correct course now to end the debacle.
"We're not proud of all the mistakes that were made by many different people, different parties, failures of our regulatory system, failures of market discipline that got us here," Paulson said in an interview on Fox Business Network.
Well, at least we have that. I'll give him credit, he's the first one I've heard take some sort of ownership of the crisis. Of course he should. When he was in charge at Goldman Sachs, he advocated heavily for the SEC to loosen the purse strings on the leverage restrictions under the guise of keeping our financial system competitive with international markets. To which of course is the "Mom's Wisdom" logic: "If everyone else was jumping off a bridge would you? Do the right thing, NOT what everyone else is doing"
-----------------------------
Can somebody tell me what is wrong with McCain? Is the Republican strategy to NOT WIN the election?
It seemed in last nights debate as if somebody had to tell him he should be angry and had to coach him up as to what he needed to be angry about. Something like this:
Campaign Flukie: John, tonight we need you to show some anger, some passion about this economic situation we're in. The markets are tanking, people's 401K's are melting away faster then the polar icecaps.
John McCain: That's OK, my friend. That just means they'll need more beer. Did I tell you my wife Cindy is a beer magnate. And she's pretty hot too. ;) ;)
Campaign Flunkie: JOHN, THIS IS SERIOUS. PEOPLE ARE CONCERNED ABOUT LOSING THEIR HOMES.
John McCain: Well my friend, I'll just explain to them that maybe they should have 7 or 8 homes like me and they wouldn't be so worried. In any event there's still lot's of beer. That should appeal to Joe Six-Pack. It shows I'm a regular guy, except for the glut of homes.
I think he has demonstrated that he's not much more than Bob Dole with a better personal story. And if it wasn't for Sarah Palin, he would have been down by 20 points and this election would have been over a long time ago. Good luck back in the Senate John.
------------------
SPEAKING OF MOM'S WISDOM: YOU'RE JUDGED BY THE COMPANY YOU KEEP. CHOOSE YOUR FRIENDS WISELY
No comments:
Post a Comment