Just another Reality-based bubble in the foam of the multiverse.

Saturday, July 28, 2007

The Bursting Bubble of the Hollow Men

...It was the worst week for the American stock market in nearly five years, with the Standard & Poor’s 500-stock index dropping nearly 5 percent, after a sharp sell-off in the last half-hour of trading. The Dow fell 208.10 points yesterday after dropping 311.50 points on Thursday; it declined 4.23 percent for the week.

Investors took little comfort from a government report released yesterday that showed the economy grew at a strong pace in the second quarter, which Bush administration officials cited in an effort to assuage the public after the rout in the market on Thursday.

The stock market has become increasingly volatile in the last several months as the slumping housing market and problems in the debt markets are taxing the American economy. At the same time, stronger growth is China, India and Europe have kept the global economy humming.

“The economy is still strong, job growth is still healthy, the unemployment rate is low, and the global economy is booming,” said Liz Ann Sonders, chief investment strategist at the brokerage firm Charles Schwab. “But there are cracks here and those cracks seem to be gaining more of the market’s attention than the stronger components. We’ll have to see which one takes hold.”

Early yesterday, President Bush and four of his top economic and financial officials went on the airwaves to try and dispel worries about the economy. They cited a Commerce Department report that showed that the economy rebounded in the three months that ended in June; it grew 3.4 percent, which was up from a pace of 0.6 percent in the first quarter.

“And so I want the American people to take a good look at this economy of ours,” Mr. Bush said. “The world is strong — the world economy is strong. I happen to believe one of the main reasons why is because we remain strong.”

While markets did bounce up briefly early in the day, investors found little solace in the latest economic report or the soothing words from Washington...

Darth Cheneyburton should tell Commander Bunnypants to put a cork in it. Nothing panics Ma and Pa these days more than the Idiot $on telling them their money is working as well as the War on Terra. And the neighbors are noticing the problem.

...Mr Paulson said the world's biggest economy was moving to a sustainable pace of growth after official figures released in Washington showed a stronger trade performance and inventory-building by companies helped the US to grow at an annual rate of 3.4% in the second quarter.

After meeting his economic team at the White House, Mr Bush said: "The world economy is strong and I happen to believe one of the main reasons why is because we remain strong."

Markets were unimpressed, with some analysts warning that the high-profile intervention may do more harm than good. "By appearing on television in an unprecedented group interview, the White House is validating concern about the credit markets," said Tony Crescenzi, chief bond market strategist with Miller, Tabak and Co.

Other analysts said there were reasons to fear that worse was to come, with warnings that the tightening of credit conditions meant the bubble had burst for private equity. "When there is uncertainty about financing, then private equity is not so quick to make deals. It would take out one of the props for the market," said Elliot Spar, market strategist with Ryan Beck & Co.

Julian Jessop, international economist at Capital Economics, said markets were being complacent in believing confidence would quickly return once the US housing market recovered. "For a start, the US housing market will not bottom out any time soon. Second, a much broader reassessment of risk appetite may only just have begun. Third, other factors might drive markets down further even if there is no more bad news from the US. Top of the list is the prospect of a disorderly unwinding of the yen carry trades..."

The Dark Wraith goes into gory detail about why the markets are so unstable and why you're still broke.

Lambert quotes a modest summary of the situation by Jerome à Paris here:

...the current boom was the cause of much of the increasing inequality in recent years, and has been the source of many extravagant fortunes. As the bubble unwinds (or pops), it is essential to make it clear that it should not be workers, or taxpayers, that end up paying for the recklessness of the financiers, and that those that gorged on the good times should bear the pain of the new, leaner times.

The dismantling of all the barriers between commercial banking and investment banking unsurprisingly took place near the beginning of the great Greenspan Bubble, it might be necessary to reconsider it. Taxes on capital gains, and on income on capital, have been lowered in the past; maybe it’s time to change that again. The crushing of labor, and the erosion of labor rights, has made ever-increasing profits a reality and has fuelled the ever-more optimistic expectations of the financial markets. That should also be reconsidered.

The focus on financial profits over industrial ones, unable to provide the same instant returns, has skewed the economy ever more towards financial services rather than other “real” activities...

Altogether, the politics of individual greed over those of a collective future need to be blamed...

Not likely. With the most powerful members of our country the most involved with the manipulation of money, it is more likely they will place the burden of their errors on the backs of the majority who actually produce things and services for a living, since they view us as servants and simple beasts of burden.

No comments: