Enter your email address:
Enter the recipients' email addresses, separated by commas:
Message:
Traders work on the floor of the New York Stock Exchange after the opening bell May 7, 2010. (Photo: Mario Tama / Getty Images) How to avoid another day like Thursday, when, at one point, the Dow lost almost 1,000 points? On Monday, SEC Chairwoman Mary Schapiro met with the leaders of the major stock exchanges and the Financial Industry Regulatory Authority to discuss implementing new protections to avoid repetitions of Thursdayâ??s nosedive. Randall Lane on the dangerous joint addiction that governments and markets have developed.
The most telling moment of the financial crisis: President George W. Bush, the Cabinet, congressional leaders, and both presidential nominees huddled desperately at the White House on September 25, 2008, to hammer out a Wall Street bailout package, all watching Treasury Secretary Henry Paulson, the former Goldman Sachs chief, get down on one knee to literally beg for Nancy Pelosiâ??s support.
A consummate Wall Street creature, the pathetic, groveling Paulson knew what would happen without a bailout. When Congress rejected it, the Dow sank 778 points, the largest one-day drop ever. Only then, as the markets sent the world into full freak-out mode (â??this sucker could go down,â? Bush warned famously, with typical elegance) did a $700 billion package pass.
It used to be said that if America sneezes, the world catches coldâ??now itâ??s just as likely to come from the other direction.
Yesterday felt like déjà vu, with a European twist. An economy undermined by junky debt (Greek, rather than subprime) that threatened to prove contagious. Markets fresh from meting out the price of inaction. And then finally, the bailout: $1 trillion worth of â??shock and aweâ? courtesy of the EU and the International Monetary Fund, which prompted American stock indices to soar 4 percent yesterday, a glorious trading session that more than offset Thursdayâ??s harrowing loss. This European saga even featured moments of Paulson-style groveling (as Franceâ??s Nicolas Sarkozy presented a â??fait accompliâ? to Germanyâ??s Angela Merkel, â??she looked like a boxer who had been punched in the chest") and a Bush-style warning (President Obama lobbied Merkel at length about the dangers of inaction, presumably with more polish than â??this sucker could go down,â? even if the message was inherently the same).
â?¢ Randall Lane: How a Typo Crashed the Market The dynamics driving yesterdayâ??s market response were pretty simple. â??Markets hate to worry,â? one Wall Street executive explained to me, as we watched prices for global stocks and the euro soar. â??The EU took our worries off the table for a day.â?
And that sentiment, in all its brevity, summarizes the perpetual dilemma we face right now. The supposedly free market is addicted to the idea that government can and will allay its worries when necessary. Meanwhile, Western governments feel the need to do so, rather than risk punishmentâ??and endanger the nascent recoveryâ??from what the Swedish finance minister dubbed the â??wolf pack.â? Government policy and market stability have become intertwined, and the latticed nature of the global economy now forces Greeceâ??s problems to become ours. It used to be said that if America sneezes, the world catches coldâ??now itâ??s just as likely to come from the other direction.
More ominously, listen again to how our Wall Street executive explained yesterdayâ??s euphoria. â??The EU took our worries off the table for a day.â? Ultimately, what the great European bailout of 2010 proves is that the world still hasnâ??t learned its lesson from the great American bailout of 2008. Both rescues were, sadly, necessary (a fun remake of Itâ??s a Wonderful Life might feature a Tea Party convention transported to a version of America that didnâ??t approve the 2008 package they so loathed). But unless the U.S. and Europe make fundamental reforms to both Wall Street and government, they are just one-day fixes that will need to be repeated.
Long-term, the markets remain a casinoâ??or, still worse, a slot machine, where money disappears into an electronic box. The scariest part of Thursdayâ??s insane trading session remains what we donâ??t know. Specifically, how the Dow Jones Industrial Average instantaneously dropped 1,000 points, how the stock prices for Procter & Gamble and 3M were decimated, how Accentureâ??s price dropped to a penny. Investigators now discount the idea of a â??fat fingerâ? mistakeâ??an emerging theory instead holds that different markets, seeking speedbumps during an already-chaotic day, automatically shut off or slowed down at different times, causing order imbalances. But that remains theoryâ??five days later, Wall Streetâ??s best minds still canâ??t provide a definitive answer, which just strengthens the larger point: Our computerized exchanges have become so complex that the machines sometimes control the humans. That must be cured.
Also long-term, while traders applauded Europeâ??s new round of debt, which will go to cover old rounds of debt, such fixes donâ??t address the fundamental problem of governments that donâ??t bring in enough money to pay for the services they provide. Sure, the markets felt good yesterday, but Iâ??m not convinced that a rally based on such thin gruel will even last into today. Without fiscal reform, in conjuction with Wall Street reform, it will just be a matter of time before some other government official will have to again get on bended knee.
Randall Lane is the former editor in chief of Trader Monthly, Dealmaker, and P.O.V. magazines, and the former Washington bureau chief of Forbes. His book, The Zeroes: My Misadventures in the Decade Wall Street Went Insane, will be published in June.
Get a head start with the Morning Scoop email. Itâ??s your Cheat Sheet with must reads from across the Web. Get it.
For inquiries, please contact The Daily Beast at editorial@thedailybeast.com.
The markets are reacting to the extreme debt levels that worldwide governments are accruing. Politicians and governments refuse to cut back on the lucrative and unsustainable pensions for greedy public sector jobs. Get ready for the next wave down.
In the past two years, Wall Street has gotten more government subsidies than the common people ever could have imagined.
"And how many times can someone get down and one knee until that becomes meaningless and useless"........."shoulda' let that sucker go down two years ago"!!
How tue! The best advice is still the same..."when the little man gets in, get out!"
As a socialist, I will give them even better advice:never walk into the Big Casino in the first place since the game is rigged. And I do not believe this Monopoly game is doing anything at all for real people or teh real economy in this country--NOTHING. It should all be shut down and would be tomorrow if I had anything to say about it.
mcmchugh99 ( " It should all be shut down and would be tomorrow if I had anything to say about it. " ) Don't you just love a self proclaimed socialist like mcmchugh99, sounding like a dictator ? It's the socialist belief that they know what is best for everyone else, and they'll damn well spend everyone else's money when they feel like taking it from you. Socialism is working so well in Greece, and worked so well in the EXTINCT Soviet Union, the EXTINCT East Germany, and continues to keep the people of Cuba, and Venezuela impoverished under socialism, as their leaders Chavez and Castro live comfortable Capitalist Lives. Dictators don't actually believe in socialism, EXCEPT when it applies to the masses. Socialists don't believe in individual exceptionalism, but believe everyone IS THE SAME. What twisted thinking. Nobody is the same, it is human nature to want to strive to excel, until a Socialist gets in the way, squelching dreams, demanding everyone be ordinary.
Personally, I'd be happy if we became more like Denmark and Sweden rather than Cuba or Venezuela. As it stands now, we are well on our way to becoming like Mexico.
They love bailouts because the government puts a floor or a safety net under teh Big Casino and allows the players to go on gambling without the danger of actually being wiped out. They have known since the 1930s that capitalism cannot function at all without government regulation and safety nets, although in this case the government has been far more generous in protecting Wall Street that it ever has been with the ordinary slobs. This is the same reason conservatives love tax cuts for the rich since it frees up more money for gambling on Wall Street, never more so than under Reagan and Bush Junior. We've seen how well that worked out. That is part of the dysfunction and corruption of our political system in that it represents big donors and lobbyists far better than the common people.
" Why Wall Street Loves Bailouts " As long as they have the taxpayer bailout " safety " net, they'll continue to behave irresponsibly, until the entire country is taken down. If they're (Wall Street) gambling with someone else's money (taxpayers) where's the incentive to stop gambling ?
and you point is what?
The European bailout of Greece will only stall the problems with today's economies. Nothing has been solved; and nothing ever will until the world goes through it's next financial disaster. Already, the political economists are "bragging" about our economic revival and recovery, and telling us there is no chance for a second dip in this recession. I believe they're wrong. The second dip in our double-dip recession is just around the corner, and when it hits, it'll be far worse than the first. The "experts" are also telling us that this will be a "jobless recovery". Just ask any one of the 17.9% true unemployed persons in the USA if they feel they're on the road to recovery! But, this is an election year. Neither the politicians, nor Wall Street, can afford to let us know how things truly stand. If that's the case, the bottom may not drop until just after the mid-terms. But the drop is coming.
I will be very disappointed if it doesn't crash again. None of the structural problems of the system have been corrected, only papered over and the next big crash has merely been postponed.
This is insanity at its finest. The World Bank and IMF are heavily funded by the US. The quota for the US is 16.74% - so basically out of the Trillion Dollar Bailout - the US will pay $167,400,000 which is $167.4 Billion to bail out another country. This is significantly more than we should be paying for another country's pensions for their socialistic behavior. Compare that to China (who has the second largest economy in the world) and their quota which is 3.65%; or Russia whose quota is 2.69% and yet their economies are growing (at the expense of the US). More insanely is that the economy of China is roughly half of that of the US and yet it's quota is less 1/4 of the United States. So for some reason - we have to spend more to bail out a country that we don't do a lot of business with, and we have to pay a higher percentage (or more than our "fair" share) but I can't find any documentation anywhere as to "why" we should pay more. I did find that Tim Geithner, is our financial "Governor" at IMF - so maybe he can explain why we have to pay so much more than the other countries. I am tired of the US taxpayer paying for problems we didn't create and that don't really further our interests (life, liberty, and the pursuit of happiness). I am hoping enough people feel the same way I do and start voting political incumbents out of office. Maybe if we get rid of the existing politicians, we will find some that will actually start to represent our interests instead of their own.
Then reform the IMF in such a way that it is no longer based on contributions from individual countries. There have been many proposals for doing this over the years.
Thank you. As a first time user, your comment has been submitted for review. It can take anywhere from a few hours to a day or two for your comment to be reviewed, depending on the time of week and the volume of comments we receive.
Please log in to leave comments.
The Next Harriet Miers?
Paul Campos is a professor of law at the University of Colorado at Boulder.
The Problem With Elena Kagan
Peter Beinart, senior political writer for The Daily Beast, is associate professor of journalism and political science at City University of New York and a senior fellow at the New America Foundation. His new book, The Icarus Syndrome: A History of American Hubris, will be published by HarperCollins in June. Follow him on Twitter and Facebook.
Why I Hate the Politics of Hate
Meghan McCain is a columnist for The Daily Beast. Originally from Phoenix, she graduated from Columbia University in 2007. She is a New York Times bestselling children's author, previously wrote for Newsweek magazine, and created the Web site mccainblogette.com. Her new book, Dirty Sexy, Politics, will be published in August.
Gordon Brown Resigns
Tory-Lib Dem deal expected Tuesday night.
Oil-Rig Companies: Not Our Fault
Blame each other for Gulf disaster.
Senate Passes Fed Audit
After unanimous vote.
How a Typo Crashed the Market
Randall Lane is the former editor-in-chief of Trader Monthly, Dealmaker and P.O.V. Magazines, and the former Washington bureau chief of Forbes. His book, The Zeroes: My Misadventures in the Decade Wall Street Went Insane, will be published in June.
De Niro and the Celebrity Restaurant Curse
Randall Lane is the former editor-in-chief of Trader Monthly, Dealmaker and P.O.V. Magazines, and the former Washington bureau chief of Forbes. His book, The Zeroes: My Misadventures in the Decade Wall Street Went Insane, will be published in June.
Idol's Red-State Resurgence
Randall Lane is the former editor-in-chief of Trader Monthly, Dealmaker and P.O.V. Magazines, and the former Washington bureau chief of Forbes. His book, The Zeroes: My Misadventures in the Decade Wall Street Went Insane, will be published in June.
Sign me up for The Daily Beast's morning email and breaking news alerts.
Read Full Article »