Don’t Be Surprised; Be Very, Very Scared

A Market Uptick Does Not a Full Recovery Make

LIBREVILLE, GABON, OCTOBER 14: Is anyone surprised that the markets would go up after billions of dollars were “injected” into ailing markets. Think of that as an injection of penicillin into an infected body, or even heroin being “injected” into the veins of a junkie.

Everyone feels good for a minute and optimism returns. It’s called market psychology. Think of your psychology if someone gave you free money to bail you out. It doesn’t take a great mind or a Nobel Prize in Economics to realize that people who exist to make money are happy to take what you give them.

The era of state capitalism is upon us; Bill Bowles quotes the economist John Foster Bellamy, one more voice we rarely here in the punditocracy:

“It is only in these dire circumstances that the United States, where private property is more sacrosanct probably than anywhere else in the world, is talking about some kind of nationalization of banks, if only limited. In financial circles they are now calling this ‘regime change,’ borrowing the term of course from a different context. But it is clear what it means: the end of neoliberalism, and the rise of aggressive government interventions into the economy. It represents a clear recognition that this is not a liquidity crisis that can be solved by pouring more money into financial markets or by lowering interest rates.”

A year ago, after the market meltdown sent shares reeling, the Fed did what it does and pumped money in like ballast. Noted Fortune, “Wall Street loves to talk about letting financial markets weed out the weak. But when the Street itself gets in trouble, it sticks out its little tin cup, asking for help and gets it.”

At that time, as I quote in my book PLUNDER, Carl Weinberg, chief economist for High Frequency Economics said, “Markets should not be calmed by this tactic. This move is NOT going to provide any relief to the overall economy.” He was right then and this sentiment is right now.

As a reader wrote to the Wall Street Journal back then, “Things will get worse before they get better… This is a full systematic collapse of our economy. The problems are masked and hidden through every layer of economy.”

That was written in August 2007. What happened afterwards? He was proven all too right.

Flash forward to the present, and here we go again, with the return of “volatility” and wild rides on Wall Street. The market psychology (or is it the psycho market) is in full view ricocheting from fear and panic to optimism and confidence.

A year ago, Fortune wrote, this is galling because “Wall Street enabled this crisis in the first place.”

Heaven forbid that we assess blame or responsibility.

The US is now buying into banks. Henry Paulson is being called a socialist. The Socialist Workers say he is “fumbling for solutions.”

The Naked Capitalism Blog explains what the people who want to impose new rules propose. Whether they will be able to contain the greed genie remains to be seen:

”The governments of the world’s largest economies have moved decisively to prevent any recurrence of the collapse of the global financial system.

The Financial Stability Forum, an umbrella body that comprises individual governments and central banks as well as international bodies such as the IMF, has proposed that, in future, banks will be prevented from borrowing – or creating ‘leverage’ – on the scale seen in recent years, and will have to set aside more of their own resources, or capital, so that they can withstand any future turbulence. Mario Draghi, chairman of the forum and governor of the Bank of Italy, said it had taken an unprecedented financial crisis to drive home to financial institutions that they have to have ‘less debt, more capital’. Firms have resisted because they refused to believe ‘profits are going to be lower in the future’ in the financial sector.”

What’s the take from someone praised for a commitment to socially responsible business? Robert Savio passes this along:

”Nobel Peace Prize laureate Muhammad Yunus says that greed has destroyed the world’s financial system. SPIEGEL ONLINE spoke with him about the profit motive, social consciousness and what should be done to end the financial crisis.

SPIEGEL ONLINE: Mr. Yunus, for years you have been preaching a more socially conscious way of doing business and have denounced the narrow focus on maximizing profit as harmful. Now, the entire financial system is wobbling…

Yunus: The current turn of events makes me sad. It is certainly not something I am happy about. The collapse has hurt so many people and has suddenly made the entire world unstable.”

I am writing from Africa where one businessman told me, “as your systems go down, ours collapse.” The IMF is warning of famines when this slow motion crisis reaches this continent. Look at Zimbabwe and cringe.

I am fumbling to understand the full hit I have already taken to my own retirement fund built up over a lifetime. All of us are, and it’s scary as hell. I am hardly alone. Tom Engelhardt connects the personal to this madness:

“The point is: Why look? The news is going to be worse than you think, and it’s way too late anyway. This is what crosses your mind when the ground under you starts to crumble. Don’t look, not yet, not when the life you know, the one you took for granted, is vanishing, and there isn’t a damn thing you can do about it.

Today, in my world at least, this is the most commonplace of comments. It’s just not a line I’ve seen much when the press and TV bring on the parade of financial experts — most of whom are there largely because they didn’t have the faintest idea that anything like this might happen. Whether they’re reporting on, or opining about, the latest market nosedives, panic selling, chaotic bailouts, arcane derivatives, A.I.G. facials, or bank and stock-exchange closures, it still always sounds like someone else’s story. I guess that’s the nature of the media.

It’s professional for reporters and pundits to write or talk about the pain of others, not their own.”

The pain is here and it is getting deeper. An uptick in the market doesn’t assure otherwise. It is not like an Alka Seltzer pill. Everything will not be ok. Sorry to be the one to tell you.

– News Dissector Danny Schechter wrote “Plunder: Investigating Our Economic Calamity” (Cosimo) available at online book stores. Comments to Dissector@mediachannel.org

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All of the problems were exagerated by two things. Mark to the Market rules and the repeal of the up tick rule. This disaster would have been averted if the Financials where not first forced to raise capital when it was not necessary, and then to have their shares crushed by the naked aggressive short sellers, when the time came to attempt to sell stock. The perfect storm at the hand of the SEC.

I’m certain that life will go on, but I think people like Mike, who is probably not a Warren Buffet, can’t comprehend just how bad things can get for someone like him, a person who invesred wisely and still has a nest egg. Always remember that history predicts the future - desperate times has always created desperate people and desperate people have been known to engage in unthinkable acts!

The dead cat will bounce in direct proportion to the downward velocity when it hit. 936 points on the Dow is one helluva bounce though. (But you never know, this cat may break through this floor and bounce again… Who really knows where the bottom is? Surely not Paulson and Dumbya!)

The condition of the country has ruined to that much extent that the world nations should come forward to help it. The unemployment and poverty has destroyed the lives of the millions.