Capitol Hill Blue Forums Political Issues Finance, the economy & Economics How will the financial crisis develop?

With all respect, there is no "proper value" of the stock market. It is frequently the case that prices rise when people say the market is over valued... and fall even when there is an opinion the the market is undervalued. Stocks are worth exactly what you can sell them for.

I questioned your claim that the market would have had a "countervailing subsequent loss" if the Geithner appointment were not responsible to Friday's gains. That's a mysterious concept to me, and one that you have not elucidated any further.

Also, you seem to be stating that the market was responding to the perception that the Geithner appointment was a harbinger of economic rescue, but I don't buy that either. I agree with the Chimp that the market was making a normal adjustment after a week of precipitous decline, just as it did the previous Thursday. I meant to suggest that analyses such as the Chimp's, had they been widespread in the Librul Media, would have put a damper on the rally, but I did not mean to suggest that their absence was responsible for the rally.

I hope that clarifies my observations.

Wait... when did Bank of America buy Wachovia? I work for Bank of America and I was never told of this!!!!!

Bank of America bought Merrill Lynch. Wachovia was bought by Wells Fargo.

While that is true, there are a variety of pricing models for stocks that will show which stocks are selling for a price lower than the intrinsic value of the assets minus liabilities.

Those models go out the window in a time of panic or in a time of unexplained boom (anyone remember the tech boom?).

But why do you think that proven investors like Warren Buffett are now buying a ton of stocks??? Because today those prices are lower than they've been in a long time and they plan on holding those stocks long term.

I don't want to belabor the point, because it is somewhat off-topic, but my point is simply that "the market" responds to a lot of forces that are not always rational. In this case, there was a direct timing link to the Geithner appointment which was inconsistent with the Chimp's analysis. The Chimp piece (sorry, I don't remember the author and don't care to go back to look for it) tried to argue that it was a normal bounce, but that doesn't comport with the facts. Were that the case, there would have been a reciprocal response - a dip - that reflects the cyclical nature of stock sales following a run-up as investors (speculators, mostly) "take profits." Instead, there has been a steady rise all week, despite otherwise dim economic news. The Chimp piece/analysis does not explain this discrepacy. THAT is all I am trying to say. It is sloppy analysis based more upon its own opinion than empirical evidence.It does for me, as I hadn't taken it that way. I think, truly, any anthropomorphic explanation for the behavior of the market is mostly speculation anyway. Analysts, including me, try to make behavior fit their perceptions equating coincidence with causality.

On the broader theme, I expect that there will be a significant retrenchment within the market, and the smart money will follow the smart analysis of individual stocks. The overall problem with the market has been the willingness of analysts to follow expectations rather than sticking to the fundamental soundness of the underlying businesses. But then, that is the inherent stupidity of stock markets in general. Stocks are supposed to represent fractional shares of assets of a going company, not an exchange based upon daily marginal fluctuations of perceptions. Until we get away from that idiotic thinking, speculative bubbles will persist.

Kap, I just wanted to say I agreed with everything in your last post.

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You Ain't Seen Nothing Yet

These are important parallels, numan, and more relevant to the overall question. The error, of course, is that in 2008 we have had the experience of a Great Depression and have some idea what caused it and how to respond. I am not excusing the abhorrent behavior of many market participants, nor the dire consequences of not acting properly. What is most important in this crisis is to not lose our heads. We are in for probably the severest economic times in my lifetime, but there is a resiliency underneath that will prevent, in my view, the darkest days of the Depression. Some of us have learned something, and hopefully that will be enough. Many safety nets exist now that did not exist in 1931-32, including unemployment insurance, the FDIC, and Social Security. Are the worst actors chastened? I doubt it, but I am hopeful that the worst actions can be countered.

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Here are some of the headlines from

Financial Week online:

FAS 157 Cancelling Out TARP, Bankers Say

[Even the American Bankers Association says that the bailout is failing]

More Than 20 Bank Failures This Year ---- And More on the Way

Home Prices Plunge More Than 17% in September

Warning: Premiums to Rise

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The Coming Trade War

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PART 1
The coming trade war and global depression

Trade protectionism is re-emerging, but the irony is that it is being driven not by the poor economies that have been hurt the most by the globalized neo-liberal trade regime, but by the wealthy economies, especially the US.


PART 2
Dollar hegemony against sovereign credit

Twentieth-century history showed that economic fundamentalism can have devastating results. Early in that century, rigid adherence to the gold standard was exacerbated by sterling hegemony, ultimately leading to the Great Depression and World War II. Now a new bunch of fundamentalists are in charge.


PART 3
Trade in the age of overcapacity

Neo-liberals have created a false dichotomy between so-called command economies and market economies. With the CNOOC-Unocal controversy, ideologue fantasy is once again clashing with harsh reality as the US on the one hand relies on China to relieve its overcapacity problem while on the other it fears for its national security.


PART 4
Scarcity economics and overcapacity

The myth of scarcity is as old as the story of Adam and Eve, who were driven out of the garden of plentitude by a jealous god bent on preserving his pre-eminence - rather like today's wealthy capitalists. But the myth is unsustainable, as even the concept of employment is becoming obsolete.


PART 5
Intellectual property rights: Bad TRIPS

Society benefits in the long term when intellectual propert protection encourages creation and invention. However, under the provisions of a WTO rule produced by the Uruguay Round in 1986, the wealthy countries and giant corporations have manipulated this principle for their own short-term gain. But the developing economies are fighting back.


PART 6
Trade wars can lead to shooting wars

The rapid rise of China as a major economic force has provoked US policymakers to wonder whether free trade is still in the US national interest; after all, "free" trade always favors the strong. Now that the US has gotten its way and China has unpegged the yuan, its ill-considered policies will come home to roost, making for desperate times - for everyone. This is the final article in this series.

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