Markets see Obama the radical
posted at 10:45 am on March 7, 2009 by Ed Morrissey
After almost seven weeks of the Obama administration, the markets have already given the new president a failing grade. After the rollout of Obama’s stimulus plan, mortgage bailout, and the blueprint of his FY2010 budget, Wall Street has blown a big raspberry at the White House, losing almost 18% of its value since the inauguration. Hoover Institution fellow Michael Boskin says that investors have recognized that Barack Obama intends to impose a hard-Left economic agenda on the US in an effort to transform us into Europe:
The illusion that Barack Obama will lead from the economic center has quickly come to an end. Instead of combining the best policies of past Democratic presidents — John Kennedy on taxes, Bill Clinton on welfare reform and a balanced budget, for instance — President Obama is returning to Jimmy Carter’s higher taxes and Mr. Clinton’s draconian defense drawdown.
Mr. Obama’s $3.6 trillion budget blueprint, by his own admission, redefines the role of government in our economy and society. The budget more than doubles the national debt held by the public, adding more to the debt than all previous presidents — from George Washington to George W. Bush — combined. It reduces defense spending to a level not sustained since the dangerous days before World War II, while increasing nondefense spending (relative to GDP) to the highest level in U.S. history. And it would raise taxes to historically high levels (again, relative to GDP). And all of this before addressing the impending explosion in Social Security and Medicare costs.
Markets look forward, not to the present or past. Investors in any sort of market attempt to predict the future, determining where to put their money. They choose industries, companies, and aggregations based on where (and whether) they expect growth.
That’s what makes this Obama’s bear market. Investors have seen what Boskin sees, and they’re pulling out. They don’t see anywhere in the near or long term that looks promising for growth. It doesn’t help when Obama himself offers investment advice by referring to “profits and earning ratios”, since profits and earnings are the exact same thing and stock investors look at price-to-earnings ratios (P/E ratios). It also doesn’t help when Obama promises a clear recovery plan to investors and his Treasury Secretary — the “uniquely qualified” indispensable Cabinet appointee — shows up empty-handed.
Wall Street sees rampant incompetence at the top and has given Obama a vote of no confidence.
The question that Boskin poses is whether they see something worse than incompetence, and clearly, they do. The policies Obama espouses — tax increases, greater regulation, limitations on energy production — are explicitly anti-growth. All three kill growth in different but linked ways. All of them increase the costs on businesses at a time when prices can’t go up, squeezing people out of the market and into unemployment lines, along with all of the people they may have hired otherwise. That gives Obama a mandate for a nanny-state approach that he claims will be temporary but already has taken on the permanence of the European system that drives down growth and keeps unemployment at the levels we just reached this month as a rule.
It’s incompetence married to ideology. It’s a fatal prescription for investors, and they’re voting with their feet.
Blowback
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We are arguing in circles.
I do not feel we are actually disproving each other but rather arguing the same point in different ways.
Corporate equity is, in part, market based since investors put money into the company based on various items on the company as well as the market and the economy as a whole.
SO, let’s take GM for example. People are taking money out of GM because of risks outweighing the rewards, both internally and externally.
So, investors of various sizes are making educated (hopefully) guesses about the company and direction based on the present.
Based on the news today they try to predict what will happen tomorrow, in short.
Having said that, my argument still stands. The investors are investing or taking money out of the market based on their current confidence level, the news, and other information out there.
They are making a prediction of the future based on the present state of the economy and their confidence (how they are measuring risk vs. return).
However, to say that the indices themselves is a good predictor of the future isn’t good. For one, how far does it predict into the future?
ckoeber on March 7, 2009 at 4:02 PM
Show me some links to a real analysis. Why should Gramm take blame for something he didn’t cause? You say “there’s more to this story” and I’m supposed to just take your word for it? And we’re not talking about his role as an adjunct to the McCain campaign here, so that’s irrelevant.
venividivici on March 7, 2009 at 4:02 PM
getalife,
From Mr. Gloom and Doom himself, about a month ago. This was before passage of the “stimulus”:
“By now,” Obama opens, “it’s clear to everyone that we have inherited an economic crisis as deep and dire as any since the days of the Great Depression.”
NR fisking:
This is untrue. The early-1980s recession was worse than where we presently stand.
Mr. Gloom and Doom:
“What Americans expect from Washington,” the president continues, “is action that matches the urgency they feel in their daily lives—action that’s swift, bold and wise enough for us to climb out of this crisis.”
NR fisking:
Obama’s plan, which amounts to channeling a trillion dollars into pet Democratic causes ranging from digital-TV coupons to art programs, and calling the resulting assemblage “stimulus,” is neither particularly swift nor particularly bold. The Congressional Budget Office reports that most of the discretionary spending won’t happen until 2011—so much for “swift.” If jacking up the burn rate for familiar federal handouts is “bold,” boldness should be made of sterner stuff. As for “wise”—our economy faces many challenges, but an excessively thrifty federal government is not one of them.
Mr. Gloom and Doom:
“Because each day we wait to begin the work of turning our economy around, more people lose their jobs, their savings and their homes. And if nothing is done, this recession might linger for years. Our economy will lose 5 million more jobs. Unemployment will approach double digits. Our nation will sink deeper into a crisis that, at some point, we may not be able to reverse.”
NR fisking:
This is unsupportable. The unbinding effects of federal spending, if they come at all, come gradually. The cost of waiting a week or two, in order that our priorities might be examined and debated, is well worth the lost time when balanced against the behemoth—the president might call it an “enormity”—that is the stimulus package…
INC on March 7, 2009 at 4:03 PM
In that NRO article Williamson goes on to say:
Obama has been lying and manipulating gloom and doom for his own advantage.
INC on March 7, 2009 at 4:05 PM
Might as well disband the global “futures” markets immediately.
Establish some sort of global “present” market.
That’ll inspire investors and risk takers.
coldwarrior on March 7, 2009 at 4:05 PM
POTUS, Congress Fiddle while America’s Wealth BURNS!
Just since Barack Obama was installed as POTUS – a mere 6 wks ago, our Major Stock Market Indices have plunged more than 20% (the defining point of a “Bear Mkt”) and the Recession has deepened with over 8.1% now officially Unemployed. Fire-sale prices are in effect – Citigroup stock is around $1 and GM shares are now less than $1.50 – as investors see major American financial and manufacturing behemoths on the brink of bankruptcy.
Zoom out a bit, and we see the situation even more dire. Since Mr. Obama’s Election, Americans have lost some $3 trillion in wealth, reports Investors’ Business Daily, as the markets have plummeted some 30%. The Dow Jones Industrial Average, for example, has collapsed from 9,625.28 on November 4, 2008 to 6,626.94 on March 6, 2009. In the midst of all this: Millions of Americans have lost their jobs. Small businesses are dying. Big businesses are dying. Credit is tight. Confidence is low. And people are anxious.
The White House and Congress are fiddling – with an “Omnibus Spending” (& Pork) bill (that was supposed to be done last Sep for FY 2009) , a “Cap and Trade (carbon tax)” bill, the (so-called) “Employee Free (i.e. Forced) Choice (card check)” Act, and a (National Socialist) Universal Health Care plan – while America’s Financial Markets and Banking System are BURNING!
Please e-mail or call your Sens & Reps & tell them to stop fiddling with this hogwash, pass a simple Continuing Resolution (CR) to keep the government running for the last 6 1/2 mos of FY 2009, and to come home for a REALITY CHECK!
http://www.senate.gov/general/contact_information/senators_cfm.cfm – http://www.house.gov/house/MemberWWW_by_State.shtml
bmac727 on March 7, 2009 at 4:08 PM
The people put their most valuable commodity into Barack Obama, their hope. This notion that money is more valuable than everything else needs to end.
I am not in dispute that there are many investors out there who disagree with Barack Obama’s policies. But the notion that we can somehow hit the reset button (by letting every bad firm fail) and start over is not (IMHO) the way to do it.
For one, only the poor and middle class would be hurt by that policy. The rich don’t take much of a hit as they most likely have assets and savings shored up. To not only blame the poor and middle class for the recession but to also levy the punishment on them (regardless if they were implicit in what happened or not) is proposterous.
Second, when will the spiral end after letting all of these companies fail? Credit will completely freeze and investors will not only make a run for the banks but a run for their investments as well. Hundreds of otherwise good companies will fail and the process will continue for a long time.
ckoeber on March 7, 2009 at 4:13 PM
getalife is becoming more incoherent and rambling further afield with each post. Keep up the good work people!!
jeanie on March 7, 2009 at 4:14 PM
The market predicts “the future”, given all information known at the current moment. Period. When new information becomes known, the market’s estimates of future profits changes.
The primary source of new information over the past month or so has been the Obama team’s plans. Therefore, it is logical to attribute the primary cause of the decline to Obama’s plans.
I don’t want to say I’m “arguing from authority”, but I have an MBA, have worked as a business consultant for years and done hundreds of corporate valuations and have daytraded the markets for nearly 15 years, studying market movements during many of my “off hours” from work, often staying up until midnight and waking up at 4am to watch the futures markets reacting to Asian and European news. I’m not saying I know every single thing there is to know about markets, but I know a pretty significant chunk of what there is to know and I know that Obama is death for markets because his plans penalize capital formation and that’s not good, to say the least.
venividivici on March 7, 2009 at 4:14 PM
Good grief – you lose. No point in talking to somebody who spouts that rubbish. Bye
Vashta.Nerada on March 7, 2009 at 4:16 PM
INC on March 7, 2009 at 4:03 PM
I don’t see the words radical, socialist, communist, tea parties, etc.. in the President’s words.
I do read the reality in his words.
He inherited this disaster and he said so.
Those are facts.
getalife on March 7, 2009 at 4:17 PM
It must be extremely painful to be a social liberal or someone who voted for the teleprompter jesus based on skin color right now. Sadly for them, it is going to get a lot worse as time goes by.
Vashta.Nerada on March 7, 2009 at 4:19 PM
I’m sorry, but this kind of Hallmark sentimentality is fine for one’s own personal life, but as an economic philosophy it’s not even borderline stupid, it’s full-on stupid. The business of America is business.
venividivici on March 7, 2009 at 4:19 PM
The thermometer is going lower, more than it went higher before.
Time there was warmth and plenty, but that cup soon runneth no more.
Though we could not caution all, we still might warn a few:
Dont lend your hand to raise no flag atop no ship of fools.
Ship of fools on a cold cruel sea
Ship of fools sail away from we.
It was later than we thought, when we still might have believed as you,
Now we cannot share your delusions, ship of fools.
MB4 on March 7, 2009 at 4:20 PM
It is so incredibly un-American as well as blasphemous to speak of Obama as the hope of the people. Especially considering the fact that he’s not even a man of integrity, but a proven liar.
No one said money is more valuable than everything else. That’s so typical of the Left to have a meme like that that is actually just a projection of their values. Notice the number of tax cheats in Obama’s cabinet nominees?
INC on March 7, 2009 at 4:20 PM
e people put their most valuable commodity into Barack Obama, their hope. This notion that money is more valuable than everything else needs to end.
I’ve heard a lot of crap in my long life but that ranks right up there in the top 10!!
jeanie on March 7, 2009 at 4:21 PM
If the market thought he had a solution that would actually grow the economy, they’d already be turning around. Equity prices factor in at least 5-10 years of future cash flows in every equity analysts model. I know how these things work. The market is saying that we are more screwed 5-10 years down the road today than we were before Obama was elected.
In layman’s terms, the 5-10 year economic forecast was better on November 3rd 2008 than it is today. What has changed in that time is the policy framework the next 5-10 years will take place in.
Those are also facts.
venividivici on March 7, 2009 at 4:22 PM
If the Left thought money was not so important, then why don’t they lead the way in charitable contributions?
It’s laughable.
INC on March 7, 2009 at 4:24 PM
Being incredibly close and cheap with their own money, they want to give away the money that belongs to the rest of us.
INC on March 7, 2009 at 4:25 PM
Not a lot of buggy whip factories in this part of the country anymore. And not a lot of tube television manufacturers around these days, nor video tape recorder makers, or steam farm tractor companies, and the major steel mills that used to spread across this part of the country have long gone away, and one hundred years ago there were several hundred auto and truck companies all across America, and carbon paper companies…pretty much all gone.
Hanging on to a company, or a technology, because we, or government, has “too much” invested in it, or not allowing “losing” that company will cause people to be unemployed…certainly sounds like a winner when it comes to actual economic growth and general prosperity.
There is no such thing as full employment. 5% is usually what is referred to, or was before it became a political football, 5% was usually referred to as “full” employment.
More than that indicates the need to step up investment, step up innovation, allow the market to establish equilibrium again. Get below that number and the cost of labor increases…and often leads to less employment, not more, as the labort force competes for higher wages among a limited job base…the highest bidder gets the employee. But, overall, any attempt on the part of government to interfere in the natural equilibrium of commerce/economy results in artificial barriers all up and down the line, with the result that the economy becomes unstable, fragile.
But, is it the job of government to prop up industry or business or the private sector? Funny, but over the past few weeks, if one reads the classified ads in the Washington Post, the only people who are wholesale hiring…wait for it…is government.
And who pays those wages?
Companies fail…a fact of life…a fact of life going back hundreds of years. The answer is not propping up unproductive companies. Surely the answer is not using taxpayers’ money to do so.
coldwarrior on March 7, 2009 at 4:29 PM
In an interview with CNBC, Representative Barney Frank says he wants to push for prosecution of the people who caused the country’s financial meltdown.
A September report from the Business & Media Institute suggests one possible target for investigation: a senior member of the House Banking Committee. This congressman is “a recipient of more than $40,000 in campaign donations from Fannie since 1989″ and “was once romantically involved with a Fannie Mae executive.” The same congressman “was and remains a stalwart defender of Fannie Mae.” We won’t mention his name–oh wait, come to think of it, we already did.
In other news, O.J. Simpson has gone undercover in a Nevada prison in search of the real killer.
- James Taranto
MB4 on March 7, 2009 at 4:42 PM
HACK.
I have $250,000 in gold alone. 16.4 pounds. Makes a lovely clink when it arrived from Kitco at $630 an ounce. DTMH, why do you think the price is over $930 now? Why do you think the safe deposit boxes are full? We saw this coming. We did not think it would be so fast and Brutal, but we had enough warning, thank God.
But by all means, DTMH I want you to buy stocks! What would you recommend? AIG?
And if you think Economic times are bad now, wait till illegals are made citizens at 15 million per next month and apply for food stamps (the other money).
Only 40 days into it.
GunRunner on March 7, 2009 at 4:46 PM
Hahahahaha!
Read this: http://www.capmag.com/article.asp?ID=1826
If you read.
GunRunner on March 7, 2009 at 4:53 PM
This has to win the prize for the most inane statement ever made on HotAir.
(I am laughing so hard, I can barely type.)
coldwarrior on March 7, 2009 at 4:58 PM
Out of my whole response you find the one easiest for you to respond to, huh?
But it’s the truth, hallmark or not. To hold the investor to a higher standard is irrespondible.
To say that 62 million people voted for him for any other reason is just ignoring the facts. People vote for a variety of reasons but the biggest reason is because he/she believes that person will do a better job. That’s one of the tenants of hope people; belief in the future.
ckoeber on March 7, 2009 at 5:00 PM
I know, I know. When people are optimistic about someone you don’t like all of a sudden you can’t handle it.
Laugh at 62 million until you cry.
ckoeber on March 7, 2009 at 5:01 PM
I see, things like being optimistic and belief in the future must rank even higher.
ckoeber on March 7, 2009 at 5:03 PM
So why did 62 million vote for him? Why were there celebrations in the streets around the world when he was elected?
We can argue policy all day long but to say that there isn’t a huge percentage of people who HOPES he succeeds is just being out of touch.
ckoeber on March 7, 2009 at 5:05 PM
Understand this…those supposed 62 million who voted for Obama did so predominantly based on hype not hope.
For if they voted on hope, and not hype, they are well ignorant of all the indeces which gave clear reasons not to vote for Obama. No job experience. A Chicago hustler. Shadowy past associations. Sleezy past associations. A race-baiter. A Fabian-socialist. Dozens and dozens of promises that no President could possibly deliver on.
And they voted for him anyway.
“You shall reap what you sow.”
I laugh at the ignorance of those trying with all their might to spin their way out of their acknowledged decision to support Obama last year, and vote for him in November. You got what you voted for.
To me, that is priceless in its humor.
coldwarrior on March 7, 2009 at 5:10 PM
Let us take your point about investors and their attempts to predict the market, and go one step further. It is unquestionably true that investors make money based on their ability to predict market trends; if they wanted to make blind gambles, they’d go to Vegas, where (unlike the NYSE) they would get free drinks served by scantily-clad waitresses. In a bull market, high-rolling investors might take a gamble on a start-up that shows promise, but as the market tightens, they tend to hedge their bets, investing more conservatively in companies whose future growth they believe they can predict.
It is also unquestionably true that markets rise and fall entirely on the investors’ expectations for the future, not anything happening today, or anything in the past. The lower-wattage trolls on Hot Air that leave drive-by comments about “Bush’s recession” have no understanding of the markets, and probably no desire to understand any aspect of capitalism. The idea that investors sit around replaying tapes of CNN broadcasts from last year, then do what they can to drop the Dow another thousand points because they hate George Bush, is absurd. If a company reported record earnings for the first quarter of 2009, and simultaneously announced it would be going out of business next month, nobody would rush out to buy its stock.
What brings us to today’s plummeting market averages and gloomy economic forecasts is the incredible uncertainty generated by Obama-style fascism: the direct involvement of the government at every level of the economy, on an unprecedented scale. The Obama government is an uncontrollable bull in the china shop of capitalism: putting their thumb on the scales that balance labor and management by tossing the Card Check outrage to unions, subsidizing failure with billions of dollars pulled from productive sectors of the economy, raising the cost of labor with increasingly huge mandates on employers, and threatening to raise the cost of virtually *everything* by jacking up energy prices and cutting supply.
Big Government is a frightening, unpredictable economic actor, subject to none of the rules that govern the behavior of free-market entities, and in the case of the Democrat Congress barely subject to the rule of law at all. A broke company cannot conjure a trillion dollars in “stimulus” money out of thin air, or strike down a competitor by writing laws that distort the market, or keep corrupt actors like Barney Frank or Chris Dodd in office forever, no matter how much damage they do. No CEO can crash an entire industry in the serene confidence he will never be charged with a crime, or suffer a penny of lost personal income, or even suffer any loss of professional respect.
Big Government could do anything, at any time, without *any* economic indicators to predict its actions. It could rip 15% of the American economy out of the free market by nationalizing health care, no matter how dismal the failure of socialized medicine around the world. It could keep a failed industry afloat with billions of tax dollars, no matter how absurd and inefficient their business model – short circuiting the cycle of creation and destruction that allows well-run companies to grow and increase their market share. Big Government can act completely outside the laws of financial reality by changing the value of the currency – dropping a few trillion more dollars into the system without increasing the amount of goods and services in the economy by a single percentage point. Big Government is like a blind, insane Dr. Manhattan, existing outside the laws of market space-time, stomping across the economy as a hundred-foot giant that acts on emotion instead of reason, perhaps one news cycle away from vaporizing your company with a wave of its hand.
That is why the Dow is plummeting. Nobody knows how to predict the future because no investor can predict what this distorted, over-regulated, deficit-shackled economy will do next, or what other investors will do. So they sit and wait, which is deadly, because the economy of a free society is defined by motion, and it dies when everyone is afraid to make a move.
Doctor Zero on March 7, 2009 at 5:10 PM
Let’s be clear. I am not someone who tells others to hold back on criticism.
For people there is some need to take an argument or statement for one thing and apply it to something else.
It is not good economic philosophy to have hope as a central tenant for decision making. The point I was making was in response to a comment that investors are betting with their money on the success or failure of Barack Obama’s plans.
So, what is the poor or middle class betting with? Is over 80% of the population irrelevant all of a sudden?
ckoeber on March 7, 2009 at 5:11 PM
You obviously chose that picture because it shows Obama near a phallic symbol; shame, shame on you.
ggoofer on March 7, 2009 at 5:12 PM
Out of my whole response you find the one easiest for you to respond to, huh?
But it’s the truth, hallmark or not. To hold the investor to a higher standard is irrespondible.
To say that 62 million people voted for him for any other reason is just ignoring the facts. People vote for a variety of reasons but the biggest reason is because he/she believes that person will do a better job. That’s one of the tenants of hope people; belief in the future.
ckoeber on March 7, 2009 at 5:00 PM
*
They voted for hope alright. Hoping that Obama would take our money and give it to them. If Obama were just a smidge more in the center and pro-business, he could redistribute a lot more money. He’s just too radical, and can’t help himself.
marklmail on March 7, 2009 at 5:13 PM
http://www.youtube.com/watch?v=oeM6K3tjuL0&feature=related
RealDemocrat on March 7, 2009 at 5:16 PM
Good points, well written.
I will respond but it will take a few minutes.
ckoeber on March 7, 2009 at 5:18 PM
Is “hope” going to create a job for any of those people? Or are any of THEM going to create a job for someone else? How long do you think an economy is sustainable when 20% of the people are supposed to provide for the other 80%?
rockmom on March 7, 2009 at 5:21 PM
“It’s incompetence married to ideology”
That is the best phrase Ed has ever written.
But it isn’t true.
They are doing EXACTLLY what they have intended to do all along. Destroy the America based on free markets
notagool on March 7, 2009 at 5:33 PM
ckoeber
Some hard scrabble facts here. This great middle class you speak of—Most had money in the market which o’s policies keep driving down and down so your argument is a waste of their time. This great poor class you speak of was only hearing about what perks were coming their way if they voted for o–they heard little else. These perks are not coming unless the market improves soon. The jobless from either class–few or no jobs until the market goes up. Ergo: Nobody wins here–not with o in charge. Please take your drivel somewhere else. Surely there must be a sympathetic forum out there. I’m sure with the necessary ‘hope’ on your side, you will succeed.
jeanie on March 7, 2009 at 5:34 PM
Completely agree!!
Obamunism = enslaving our future generations $1 trillion at a time!
Sweet_Thang on March 7, 2009 at 5:37 PM
Thanks for answering ckoeber for me. I’ve been busy working on dinner. I’m back to cooking from scratch a lot more now. If Congress refuses to economize, someone has to do so.
INC on March 7, 2009 at 5:46 PM
Jim Cramer was on fire last night, continuing his rant. Used words like “the White House Shining Path” and “Obama’s jackboot on the neck of the economy” and comparing Obama to Lenin.
I can’t believe Obama is going to continue like this!
PattyJ on March 7, 2009 at 5:46 PM
They want to kill free markets.
The guy is implementing socialism.
Always was the plan, always will be.
No mystery to anyone who bothered to pay any attention.
So far, they are succeeding beyond their wildest dreams.
After destroying the markets, then they will have no competition for power.
notagool on March 7, 2009 at 5:47 PM
Good words and true.
I’d missed anniekc’s comment as I think I skipped part of the thread. Thanks for repeating them. She’s right.
INC on March 7, 2009 at 5:49 PM
And now their little feelings are going to be crushed along with anything they had saved for their retirement. They can watch him kill that golden goose – i.e. the “rich” people – they thought would carry their load.
katiejane on March 7, 2009 at 5:51 PM
INC Funny you should mention the cooking from scratch–seems like everyone’s doing it. Good way to save money and calories. Planning a veg garden this year too. Long time since we’ve done that.
jeanie on March 7, 2009 at 5:52 PM
It goes back to the saying “I never got a job offer from a poor person”. Who do you think is getting laid off because companies don’t see economic growth on the horizon? The poor and middle class. If you can’t see the connection between the stock market’s view of the future under Obama and the laws he’s trying to pass and those layoffs that hurt the poor and middle class, what do you see?
Half of all households directly own stocks and many, if not almost all, of other households either work for an exchange-listed company or work for a company that does business with an exchange-listed company. What is good for the market is good for the country, for the most part. Wall Street did go a bit overboard in recent years, based on long-term averages of the % of total wages paid to finance workers out of all wages paid in the total economy, and that is now correcting, but Obama is making it worse.
Whether you want to believe it or not, the market is the closest thing human beings have to a “God’s eye view” of the entire productive apparatus on this planet.
venividivici on March 7, 2009 at 5:57 PM
Hey, jeanie, yes, that’s the ticket today. They won’t be called Victory Gardens this time. I’ve seen them referred to already as Galt Gardens.
INC on March 7, 2009 at 5:57 PM
Since this is going to be a long and horrible recession thanks to Obama, I think some of us should help eachother by sharing what we think are good stock investments. I’ll go first, put whatever you can in Beer companies. There will be alot of drinking.
Jesse on March 7, 2009 at 5:57 PM
I have heard varying responses to the reasoning behind the economic collapse, and it still does not mathematically add up (at least in my mind). Hopefully, those more well versed than me in financial mathematics can help me out here.
One argument that has been presented very frequently (at least over here) is that the interference of the government into the markets by forcing lenders to sell people (who could not afford it) homes, led to the collapse. But, considering:
(1) the median price of a home in the last few years to be $200,000
(2) the number of poor households on whom these were thrust = 20 million,
that still is a total cost of 4 trillion dollars. Put in another way, if we were to absorb *all* the bad housing decisions made *right now*, we can get away with 4 trillion dollars in expenditure.
Any report you will read, says otherwise. Financial gurus claim that it would take 10 trillion to fully rescue AIG alone. A complete rescue of the whole banking system (if attempted) is expected to cost tens of trillions. So, why the discrepancy? There is a ton of wealth (which people claim was destroyed) which is still mathematically unaccounted for, even taking into consideration the bad housing loans. What gives?
peter_griffin on March 7, 2009 at 5:58 PM
I think tech companies still remain a sound investment, with a lot of them having great P/E and huge hordes of cash. I have already started putting my money in Intel and Cisco.
peter_griffin on March 7, 2009 at 5:59 PM
I think after the bubble, Tech has gotten much more stable. So I agree.
Jesse on March 7, 2009 at 6:02 PM
Maybe with Obama’s plans for reconstruction and “green” alternatives, you might want to invest in constuction companies too. Just a thought…
Jesse on March 7, 2009 at 6:06 PM
In an interview with CNBC, Representative Barney Frank says he wants to push for prosecution of the people who caused the country’s financial meltdown.
MB4 on March 7, 2009 at 4:42 PM
That was a great idea because (although there is lots of blame to go around) Barney is probably the most responsible. I hope they prosecute him and throw away the key.
duff65 on March 7, 2009 at 6:08 PM
Good point. I was also hoping the solar stocks would pick up, but I guess that would have to wait for the oil prices.
peter_griffin on March 7, 2009 at 6:12 PM
Give it time. I have no doubts oil prices will skyrocket soon. With everything else…
Jesse on March 7, 2009 at 6:14 PM
coldwarrior & doctor zero; brilliant comments as usual!
ckoeber, a new Liberal poster if I’m not mistaken. Anything beats getalife, so let’s hope this poster will at least engage in thoughtful debate and exchange of ideas.
ckoeber, let me tell you how my Liberal parents and brothers feel right about now, having bought into the “hope & change” for a non partisan white house, a white house that will allow NO lobbyist to be a part of the administration, a white house that will end the era of earmarks…..
My family is sick to their stomachs, literally sickened by what they are watching, and what they voted for. This man is just another lying “say anything to get elected” politician that just happened to come in a different color. This man has destroyed a business that has been part of my family for (3) generations. This man has filled the white house with absolute thugs and scumbag leftovers from the Clinton war room.
These are facts coming from my corner. My family basically dumped wife and I for not joining in on the Obama band wagon, refused to speak to us for the last few months leading up to the election. Following the election, my family gloated like neon covered pigs to us. Now, they are just plain sickened and humbled by having let themselves fall for such a prank when all of the facts pointed to this man being a phony thug politician from Chicago gang land.
Keemo on March 7, 2009 at 6:14 PM
Doctor Zero : would you mind responding to this?
peter_griffin on March 7, 2009 at 6:21 PM
Actually, it’s so bad even beer isn’t selling.
http://www.fivethirtyeight.com/2009/02/breaking-beer-no-longer-recession-proof.html
venividivici on March 7, 2009 at 6:22 PM
But, guns are.
Johan Klaus on March 7, 2009 at 6:25 PM
Anyone know what the best performing stocks were during the Great Depression?
txmomof6 on March 7, 2009 at 6:25 PM
Wrong! I put my hope into the American people. Forty eight percent of them pulled through for this great country. The other fifty two percent– failed all of us.
canditaylor68 on March 7, 2009 at 6:26 PM
I can’t believe it is so bad that Smith & Wesson has over taken Budweiser as the hot stock to get.
Jesse on March 7, 2009 at 6:28 PM
Nouriel Roubini has some good estimates on the macro numbers for different aspects of the crisis. Most of his numbers are “worst case” type scenarios, so there’s not a high probability that the expense will be more. His analysis is good, although he also falls into the “deregulation was the problem” camp, which I think is incorrect.
Plus, you have to distinguish between the amount of household wealth lost and the amount to recapitalize the financial system. Household wealth lost is a much bigger number and both are moving targets, i.e. are getting bigger daily.
AIG is actually probably closer to being done being bailed out than not. That $10 trillion must be the notional amount of credit default swaps they’d underwritten or something, but there’s no way that their bailout alone will cost $10 trillion.
venividivici on March 7, 2009 at 6:30 PM
Jesse,
People can make homemade beer if need be, but homemade guns and ammo, not so much.
txmomof6 on March 7, 2009 at 6:31 PM
Damn skippy. Probably a lot of guys who normally would be buying beer are buying guns with that money. Those two groups tend to overlap!
venividivici on March 7, 2009 at 6:32 PM
That is a really good question. But since we are going to be dealing with trillions in debt, I am really not sure what companies wont take some kind of hit from this.
I’m just trying to think of what might be somewhat stable in the future.
Jesse on March 7, 2009 at 6:32 PM
You got me there. Didn’t even think of it that way..
Jesse on March 7, 2009 at 6:34 PM
Best performing stocks during the Great Depression? Not sure one can run this down quickly, but SmartMoney did a search on the best performing stocks one should have purchased during the Great Depression, and held on to through the 1950′s. Number One: Electric Boat had a 55,000% return. Electric Boat made submarines, later merged with General Dynamics, still making submarines.
coldwarrior on March 7, 2009 at 6:36 PM
I think I heard last fall that Campbell’s soup did well last year relative to the rest of the market. Canned goods may be a good area, if not for growth at least for stability.
txmomof6 on March 7, 2009 at 6:37 PM
Oh wow, thanks for the information ColdWarrior! Very usefull.
Jesse on March 7, 2009 at 6:38 PM
Ah yes, canned gooods, MRE’s. Even with the cut in our military, I would really put down money on military equipment. Couldn’t go wrong there.
Jesse on March 7, 2009 at 6:42 PM
Obama doesn’t look at a honey bee hive like the bees do: with hard work and a little luck we’ll all make a living. But as the bear does: just break in and take it all, there will always be more honey bee hives. And he’s surprised that the bees stop working?
Fred 2 on March 7, 2009 at 6:42 PM
Great article, though it looks like alot of those companies probably profited due to WWII. I really don’t want to contemplate WWIII with Barry at the helm.
txmomof6 on March 7, 2009 at 6:47 PM
Note that the DJIA rose steadily during the Clinton Presidency from 3300 in Jan 1993, to 11,500 by December 1999, before settling back at 10,600 by the time Bill Clinton left office.
Wow, did daddy bush have radical policies?
How about his son socializing the banks so they would not collapse?
Radical?
getalife on March 7, 2009 at 6:50 PM
Kinda thinking about putting money in Wal-Mart…posted a 5% gain this last quarter, and the previous quarter. Lots of folks shopping at Wal-Mart instead of the high-end stores.
Energy…BP has a whole lot of effort going on with alternative fuels. A bit up and down for now, but long term, why not? Unless the entire market falls apart.
Gold. Precious metals. No diamonds…the kind on a ring or as a commodity, both are nothing but trouble.
Rare collectibles. (No, not Bennie Babies, or Obama collectible coins and plates.) Rare coins and stamps…a lot of dealers have an overstock of these items, and need cash, now.
Right now I have just about everything in cash.
coldwarrior on March 7, 2009 at 6:51 PM
Socialism Defined
desertdweller on March 7, 2009 at 6:51 PM
This is why I said Military equipment. We will have a major confrontation do to Obama’s lack of serious judgement.
Jesse on March 7, 2009 at 6:52 PM
getalife on March 7, 2009 at 6:50 PM
Ummm, did you say something? Can’t hear you anymore.
Keemo on March 7, 2009 at 6:54 PM
This reveals something the Obama Administration refuses to acknowledge. It wasn’t the fiscal policies of FDR that ended the Great Depression, it was WWII. Even his own Secretary of Treasury, Morgenthau, said so, just before we entered the war.
coldwarrior on March 7, 2009 at 6:54 PM
Great. Not that I disagree, but really toooo depressing for words at the moment. Gotta run feed the bambinos. Think positive. This too shall pass, and the strong will survive.
txmomof6 on March 7, 2009 at 6:58 PM
Excuse me for interupting your KoolAid drinkfest, but hope won’t pay the electric bills nor make the mortgage payments.
TN Mom on March 7, 2009 at 7:08 PM
But they sure hoped it would.
coldwarrior on March 7, 2009 at 7:11 PM
See, that’s the catch. I have read Roubini, and I somewhat agree that there was deregulation in certain critical segments of the market which are *also* responsible for this downfall, in addition to government intervention in giving people home loans. Just saying that the government meddling in real estate business caused the whole subprime mess, is just looking at a narrow spectrum of the puzzle. A *lot* of money was lost because of the deleveraging of the money invested by huge hedge funds, who were, in the lack of a better term, riding out the bull market.
I think there is a lot of blame to pass around, and I wish people did some well thought out *mathematical* analysis of it. Instead, all I hear is:
(A) Right leaning economist : government’s meddling into housing caused this collapse
(B) Left leaning economist : government was asleep at the wheel instead of regulating markets, hence the collapse
Frankly, I am a bit tired of just reading talking points from people whose analytical abilities are phenomenal.
peter_griffin on March 7, 2009 at 7:12 PM
Darn then shouldnt Michelle Obama been feeding those homeless hope rather than food since you feel that is more important ?
William Amos on March 7, 2009 at 7:15 PM
Sometime take a look as Tesco Corporation (TESO) for future reference.
MB4 on March 7, 2009 at 7:15 PM
The energy company, not the Brit “grocery store” chain, right?
What I am trying to figure out is which of these energy companies will hit the bottom since Obama has shut down new offshore drilling, and seems to want no new drilling, anywhere. Which is why I am looking at energy companies that are involved across the board, such as BP, and would profit from alternative energy as well as carbon-based energy.
Dumped all the Wachovia last summer, and WaMu. Got out just in time.
Hate to admit it, but should have started buying gold immediately. Instead I paid off just about everything I owed, closed accounts, have one credit card…tossed the rest. Cash and carry has its advantages these days. But, really should have gotten into gold last Fall.
coldwarrior on March 7, 2009 at 7:24 PM
coldwarrior on March 7, 2009 at 7:11 PM
Rats following the Pied Piper.
TN Mom on March 7, 2009 at 7:27 PM
If I were you, I would tell my parents to have hope, not in a president or a donkey or an elephant, but in the spirit and the entrepreneurship of the American people. We will be able to come out of this recession, with a stronger and more vibrant economy, and will be a better people as a result of it.
peter_griffin on March 7, 2009 at 7:33 PM
No the Brit “grocery store” chain, possible? “future Walmart”
Check out OIH – Oil Service HOLDRs (ETF) (NYSE).
MB4 on March 7, 2009 at 7:37 PM
Well, the math of it all is pretty far outside the ken of the layman, so the economists generally try to translate the story into English.
The thing of it is, the events happened in a specific sequence. Find the first item in the sequence and there is your “root cause”. Unfortunately, unless you’re going to get philosophical and say “Wall Street greed” was the first item in the sequence because that’s existed for as long as Wall Street has existed, you’re left with “government meddling in the housing market” as the first item in the sequence.
venividivici on March 7, 2009 at 7:39 PM
You with your Hotair blogin’
And you skeptics always contemplatin’
How my coronation you’d like to start rearrangin’
When that’s not what you really should do
When heaven has found you
Can’t you see
That it’s all wrapped up in the Messiah that’s Me
So follow Me
Come on, tax payers
Follow Me
I’m Obama the Piper
And I’ll show you where Hope and Change is at
Come on, tax payers
Can’t you see
I’m Obama the Piper
Trust in Me
Tax payers
Don’t be worried about payin’ big bucks to help Me groove and move
Hey, tax payers
What do you think I’m tryin’ to prove
It ain’t true
That My Michelle would like to punch and rob you
It’s just in your mind
And that’s all that’s trickin’ you
So behind all My celebrities step in line
Come on, tax payers
Pony them big bucks up for Me
Come on, tax payers
Trust in Me
Come on, tax payers
Can’t you see
Come on, tax payers
Follow Me
MB4 on March 7, 2009 at 7:41 PM
Obama lied
America died.
The world’s first affirmative action tan-American fascist tyrant!
Dhuka on March 7, 2009 at 7:41 PM
I welcome the analytics, please (you or Doctor Zero) send me any such analysis if you know of one. What I like about mathematics is that it is not biased, so as long as you agree with the axioms, you have to accept the answers. Speaking in vague terms suit the pols, but it bring us even an inch closer to the truth. And we need to know the truth here so that we don’t screw up again in the future.
peter_griffin on March 7, 2009 at 7:47 PM
getalife, meet Dhuka. Dhuka, meet getalife.
peter_griffin on March 7, 2009 at 7:47 PM
That said, there were other factors that enabled the problem to grow larger than it otherwise would have and those factors did include a failure to regulate the new mortgage distribution channels. I just read a WSJ story from 2006 or 2007 on one of the Fed governors trying to get Greenspan to regulate those mortgage originators who were subsidiaries of banks and Greenspan didn’t want to. That was a missed opportunity to shrink the problem. Another factor was allowing investment banks to leverage up to 30 times their capital. That was a mistake. Another mistake was the reliance on faulty risk models by banks trying to calculate the risks of default among subprime securitizations.
Heck, you can go back and say that another proximate cause was the US not drilling for oil for the past 20+ years, which may have helped keep oil prices from spiking and putting consumers on the margin in a situation where they were spending a higher and higher proportion of their take-home pay filling up the gas tank.
venividivici on March 7, 2009 at 7:48 PM
Also, as far as root causes go, the investment banks have always been too much outside of the regulatory structure for my liking. It allowed an internally bankrupt company like Enron to continue amazing Wall Street, and ultimately bankrupt its shareholders. Mind you, I fully believe that individual greed is a necessity for market gains. However, doing it in a way that causes ruin even in the medium term and even to the investment community, is bad business and needs to be removed (please no moral relativism here).
peter_griffin on March 7, 2009 at 7:52 PM
Don’t even get me started on Greenspan. This guy did so MANY mistakes and had so many about-faces that it is not even funny. When he came back a few weeks ago and said we may have to nationalize our banks, I must admit I lost it.
peter_griffin on March 7, 2009 at 7:55 PM
You inspired me…
Tax payers– dont be mad– at a brother. I give with one hand while taking with another. Im partying all day and night on the taxpayers dollar,then I tell Rahm to give Rush another holla. Turn up my heat while the taxpayer goes cold-I say YOU ALL got to be responsible- man that never gets old. I see all the tea partying in the city streets, time to gyp more-taxpayers -come on follow me.
canditaylor68 on March 7, 2009 at 7:59 PM
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