Thursday, May 06, 2010

What a day! What next??

The craziness continues. The New York Stock Exchange went into free-fall this afternoon but then bounced back. In that short time the DOW fell 1000 points, its largest ever point drop and biggest percentage drop since 1987. At the close the DOW was off 348 pts or 3 percent.

In Europe, the Greek parliament approved the proposed austerity measures needed to qualify for the international bailout, while outside demonstrators again clashed with police. The conviction is growing, however, that this is too little, too late—and not just for Greece.

Meanwhile back in the US, government and stock exchange officials are working late into the night trying to figure out just what the hell happened today. NASDAQ has already said it will cancel some trades it believes were erroneous. How they are determining this is not clear and there is already talk of law suits. Many “retail” traders found themselves locked out of the market during the plunge as servers and broker websites crashed all around the country. Financial web sites and blogs had similar outages.

Regardless of possible mistaken orders or technical glitches, today’s market roller coaster was primarily about growing anxiety around the world that the economic recovery may be going off the rails, if it hasn’t been a mirage all along. Since the financial meltdown in 2008, the world’s economic problems have come down to one four-letter word: DEBT. In the US it was the sub-prime mortgage collapse that sent the economy over the edge. Now comes the sovereign debt crisis of Greece and who knows how many other European countries. In both cases this debt is held by institutions around the world and so everyone is involved.

We are in an extremely unstable economic situation and perhaps political as well. Today’s fiasco on Wall Street has dealt a severe blow to confidence not only in future economic prospects but in the integrity of the market itself. Events like this combine with revelations like the Goldman Sacks fraud case to raise serious suspicions about whether the whole US financial system isn’t rigged and with some pretty heavy fingers on the scales.

The voices are growing louder and more numerous expressing concerns that we are teetering on the brink of a second major economic downturn. In recent months I’ve read several pieces pointing out that the Depression began with two crashes, the famous one in 1929 and a less well-known but even deeper one in 1932. One of these quoted articles from 1931 expressing confidence in the “recovery” and that the economy was on a rebound. Just today Robert Samuelson voices his concerns along these lines in Newsweek.

There are a lot of worries being expressed these days. Many have noted that the dithering of European leaders is much like that of politicians in the early 1930s. There is concern that US action since the 2008 financial meltdown has been mostly window dressing and that Wall Street’s influence in Washington is so strong that politicians are incapable of anything really substantive. Many say that the debt crisis of developed countries around the world is being avoided because no one—politicians or voters—wants to face the fact that the only solution is a significant reduction in living standards across the board. Coupled with this is the fear and anger that those with political and financial power are manipulating economic developments to insure their living standards are untouched. Suspicion or awareness of this at some level explains the protests and violence in Greece, which many expect to spread elsewhere in coming months.

The coming days and weeks and months will certainly be interesting.

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