The financial markets are not politically ideological, they just want to know what the rules are and will be (and by the way, why are we in Afghanistan?)

August 8, 2011

UPDATE: So now it is late in the day Monday on the East Coast as I write this and Wall Street has taken its biggest dive since December of 2008. But what I said a day or so ago when I first posted this remains true, I think. Investors want to know what the rules will be but are not getting any clear signals due to a serious lack of leadership. And I understand some calming words by our president failed to have any positive effect — platitudes are not what we need. We need action from a strong leadership in both congress and the administration from people who are not afraid to be honest and are not afraid to take criticism from the often loud-mouthed but quite ignorant and mean-spirited rabble.

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ADD 1 : I mention the Afghanistan war in this post, but what I did not mention in my original post was that 31 Americans were killed in a helicopter crash Friday, the largest number of U.S. casualties in a single incident in that decade-long war. In war people get killed (and this is a small number when compared to past wars when the daily American casualties were counted in the hundreds and even thousands) — we have to expect that. But what we should be asking ourselves and what I think the majority of Americans seem to be blind to is the question of why are we still there? And if we have good reason to be there, what is our strategy?  Whatever it is, it does not seem to be working. The all-volunteer military and the practice of fighting wars off the budget books so it is not as easily accounted for has made it possible to get into protracted wars with no clear goals or end in sight. It is a terrible waste of money and human life. The electorate as a whole is guilty of not standing up and taking note of this issue and our leaders and potential leaders fail as well. A  lot of guilt to go around.

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Before we all get excited about the U.S.’s credit rating being downgraded by S&P, don’t we have to question that credit rating agency’s credibility?

It was among those highfalutin credit rating agencies that did not see the big crash of 2008 coming, the ones who gave glowing ratings to all those junk financial schemes that put us all where we are now. Really it is all a sham.

Some people are probably making money on all the instability betting against America.

But apparently there is a real problem in the markets with extreme instability leading to investor fear and a downward trend, the worst in a couple of years (and probably a great time to buy for those who can afford the risk — and do you think someone or someones plan it that way sometimes?).

The problem in understanding what the markets want out of government I imagine is that markets are not ideological, such as all Republican and certainly not all Democrat (or conservative or liberal). I don’t think the markets in general give a hoot about who is in power, other than someone who would do away with the capitalist system altogether.

The markets just want to know what the rules will be. Once investors know what the rules are they know how to play the game. Some will play it honestly, some will cut corners, and still others will cheat the system wherever they can, but you can’t cheat unless you know what the rules are, the rules you are attempting to break.

Maybe it is about time the centrists in our government, if we have any left, get some courage and defy the reactionaries on the right and the radicals on the left and go for stability.

I imagine the electorate is still in the middle where it always has been. But it has no leadership to follow.

President Barack Obama comes off as something of a centrist, but he seems to lack that certain something that is hard to define but that makes one a leader. I also think he lost some of his credibility when he indicated during his campaign that he would get us out of war and then started a new one himself in Libya as well as led us deeper into the Afghanistan morass — and we’re still in Iraq, lest anyone forget. He came in promising to defy Wall Street and then got into bed with that crowd.

What we need is a centrist post ideological candidate with some type of proven track record.

But where would we find such a person?

P.s.

I write all this off the top of my head. So I have to concede that Obama said he would continue efforts in Afghanistan because that was one might say a righteous war, but the clear implication was that even in that he would go full speed ahead and wrap things up — not so.


Humans can’t beat computers on Wall Street, and some humans are taking advantage…

May 15, 2010

High frequency traders using computers to do thousands (millions?) of transactions in a split second could have been involved in and/or taken advantage of that recent flash crash on Wall Street where the index fell a thousand points in a few minutes and then mysteriously moved back up.

Humans, we know, cannot beat computers. Of course humans behind computers taking advantage of that very fact can do much harm.

We have to ask ourselves what the legitimate function of Wall Street trading is.

While certainly people have a right to gamble with their own money, this gambling is with everyone’s money because the actions there are tied in to the whole world’s economy.

A complete reform of our whole economic system with an emphasis on oversight seems in order. I have a feeling it can only come from those who think neither liberal nor conservative or Democrat or Republican, but think of the good of the people as a whole.


Wall Street continues the fast and loose game that controls everyone’s economy…

May 7, 2010

UPDATE/ADD 1:

Friday, May 7: Today I read on the Wall Street Journal website that still no one knows for sure what caused Thursday’s extreme dip or panic sell-off in the stock market, but it may be that it was simply the result of the fact that most trades these days are done by computers, not humans, and that there was some type of computer glitch based on erroneous info or whatever causes computer glitches. Kind of reminds me of the movie I saw all those years ago called “War Games” in which a computer hooked up to our missile national defense system almost started World War III and it was almost not disabled or fooled into calling off missile launches in time. As I recall they even tried to pull the plug but the computer outwitted them somehow. Science fiction has become true, except instead of missiles being the method to destory the world it’s economics, which might be nearly or just as deadly.

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If you could “accidentally” dump billions instead of millions of dollars of stock via computer trading on the market thereby running the price down and then quickly buy up a valuable stock that had dropped precipitously and then came back up you could sure make a lot of money in a hurry.

Wall Street stocks were down by a thousand points in five minutes on Thursday, with the sudden dramatic drop blamed partly on TV images of rioting in Greece where the national government has instituted austerity measures because it is facing bankruptcy. But it was also suspected that there might have been some kind of glitch in the trading system.  Stocks moved back up quickly but did not completely regain all their losses. The way I heard it on the nightly TV news was that there was speculation that someone basically hit the wrong key and put billions of dollars worth of a stock on the market rather than millions — whatever.

After what has transpired on Wall Street and its environs over the past several years (and over its entire history), nothing, including purposeful manipulation, seems implausible.

Why do the vast majority of the public, including workers and small businessmen, who simply want to enjoy life while being productive and who want to think that they contribute something for the good of society, have to live with an economic system dominated by a fast and loose gambling game for the benefit of the relatively few, called Wall Street?

Just wondering.

 


Capitalists may need to know the rules more than they need bailouts…

April 29, 2010

I don’t have the credentials to speak about finance but I have credentials to speak as an ordinary person. And I still say that the government bailouts for Wall Street investment banks and for the auto companies were a mistake.

You’re not likely to get bailed out when you go to a casino and lose a bet, why should you get bailed out when you bet in the securities markets?

In fact the whole gambling industry would go down the tubes if there was such a thing as a bailout. The game would be ruined.

For there to be winners there has to be losers and for there to be big winners, there has to be big losers — win, win does not really happen in gambling and in Wall Street securities trading.

But it is important for the game to be on the up and up — people lose interest once they realize the deck is stacked. And if they do not realize it, they stand to lose their retirement in the financial markets.

An article I read in the Wall Street Journal (I believe it was there) indicated that regulatory agencies were understaffed. While it does seem to be true that some of the high-priced lawyers were wasting time looking at porn on government computers when they should have been doing whatever they could do to protect the investing public, the article noted, the agencies were understaffed, with lawyers having to do menial work usually given to support personnel. I would say the agencies need to be beefed up and maybe we need some more dedicated personnel.

But what really caught my eye was one of those debate articles in which a for and against position was given on whether collateral debt obligations have any social value. That article was in the New York Times. It was referring to so-called synthetic CDOs that play into the Goldman Sachs controversy.

Without getting into all the technicalities, the one side suggested that they were an innovation with no social value and should not be allowed. And that in fact they were partly responsible for causing the meltdown in the housing market.

But the other side argued that innovations, such as CDOs, are not the culprit. Instead, the culprit is a lack of regulation and the expectation that if things really go wrong, the government will bail people out.

Well that was my quick interpretation of it anyway. If I have misrepresented the arguments, I still basically believe what I’ve said. I know next to nothing — well more accurately, nothing, about CDOs themselves, but I would think most people agree there needs to be at least a modicum of regulation for financial markets to be fair and work for everyone and thus have utility for society, other than to be just crooked gambling casinos. And people who know they stand to lose everything (with no Uncle Sam to bail them out) will likely put a lot more care into what they do, be they buyer or seller.

P.s.

Indications from all the latest financial news seems to be that some type of recovery from this Great Recession is taking place. And some may tout this as vindication for the bailouts. But I am not sure but what things would have recovered anyway. A lot of time is wasted in bailout efforts, because if nothing else, the capitalists have to figure out how to game that system. There is always capital out there, but it wants to know what the rules are. When you monkey with the system, some of that capital lies idle waiting for a sign as to what the new rules will be. From what I have read one of the greatest things Franklin Roosevelt did during the Great Depression of the 30s was to relieve human suffering. But despite his activism in the financial sector it took nearly a decade and finally World War II and the demand it put on the economic system for production to get the economy going.

While I would never want war to be the answer anyway, today’s modern methods of fighting war seem to be more of a drag on the economy overall.

P.s. P.s.

And isn’t it strange that the American car company that did not take the bailout money, Ford, leads the pack now?

While the bailouts may in the long run have helped GM and Chrysler, they set a bad precedent for business. What seems to be saving all American auto makers now is that they are reportedly doing everything to be competitive, including taking advantage of bad publicity suffered by Toyota for either its safety failures or its lack of or slow response to customer complaints, or all of the above. I think the American auto companies for the most part and for too long shorted customers on real quality and longevity in favor of glitz and planned obsolescence and settled for a high-priced niche market, rather than compete with the foreign companies head on. They seem to be back in the game. And it doesn’t hurt that Ford pickups have such a loyal following.


The Goldman Sachs saga: hedging is one thing, swindling is another…

April 28, 2010

The details of the unfolding Goldman Sachs story are somewhat complicated, but the general scenario of the whole housing market collapse that led to the Great Recession and the Goldman Sachs involvement is simple to grasp.

Led by the high rollers on Wall Street and politicians who supported everyone owning their own house and making it work for them so none of us would ever have to do real work again, millions were induced to buy homes that were too expensive for their own incomes.

This all made a lot of money for a lot of people, to include the lenders (several layers of them since mortgages were bundled and sold as investment) and some borrowers who were quick enough to flip their homes in time.

This could not last forever, but not to worry for some of those connected with Goldman Sachs. While they were selling mortgage-backed securities they were secretly making bets that the housing market would fail (via the procedure of what is called “short selling” — the very securities they were selling).

Now it is not uncommon in business and in fact is considered prudent to hedge your position.

I recall attending a meeting a few decades ago when cattle ranchers were being introduced to the commodities market. They were told that they could lock in a price for their feeder cattle by buying cattle futures as a hedge. The upside would be they would know what the price would be before they committed all the money needed to get their cattle to the selling point. The downside would be that if the price of cattle suddenly spiked at the time of sale, they would have any profit shaved by the difference between the futures price they had agreed to and the newer, higher price.

And certainly securities traders and other investors have all kinds of ways to hedge bets. But hedging is one thing, swindling is another.

The problem, as I see it, is when the actions taken by traders goes beyond hedging and actually unfairly distorts the market to the gain of those who caused the distortion and the loss to unwitting investors.

And there is certainly a conflict of interest when an outfit, such as Goldman Sachs, is both trading something for its own gain and selling the same thing to a client. 

Above all the real problem is when all these games and sleights of hand affect the whole U.S. economy — that is when there is a real public interest in all of this.

To be sure, much of what is taking place in the Capitol Hill hearings is grandstanding by legislators to make themselves look good and the Wall Street folks look bad (so they, the legislators, will look good).

Thee is no doubt need for some improved regulation.  We certainly need protections against the gaming of the system. But I’m sure that there is a danger of over regulation. It’s better to enforce the laws already on the books than to create more laws that will just introduce more expense into the whole process — that expense always eventually paid out of the pockets of working Americans one way or the other.

P.s.

And then there is this conflict of interest between our federal government and Wall Street.  President George W. Bush appointed Henry Paulson Secretary of the Treasury. Paulson had been CEO of Goldman Sachs. Isn’t it strange that Goldman Sachs was able to make money at the beginning of the fall of the housing market while others were losing and then had the good sense to become a bank holding company so it could get in on the taxpayer-funded bank bailout that was promoted by Paulson?