Close the Exchange Tomorrow

[DaveT]

This is the Big One folks. No more smug dismissal of Chicken Little -- the financial crisis is in free fall and the underlying dynamic is leading us toward a global economic shutdown. Before 1929, these periodic crises of capitalism were not called depressions or recessions. They were called panics. And we are in one now.

Since about 1:30 EDT last Friday, here are gruesome numbers from Wall Street:

S & P: 1152 ---> 909 aggregate loss = 263 (-22.8%)

Dow: 10,772 ---> 8579 aggregate loss = 2193 (-20.3%)


Governments all over the world are throwing trillions of dollars worth of promises into the teeth of this panic to no avail whatsoever. European and Asian exchanges are seeing a similar debacle.

We started this thing with our idiotic appetite for tax cuts, wars, trinkets and houses that were all bought on credit. We have polluted the world's well of credit with our childish refusal to live within our means at every level -- governmental, corporate and consumer. Everybody who has any liquidity is too terrified to let go of it, for fear of never getting back.

This is a crisis of confidence based on the very rational skepticism that anybody will be able to pay them back -- not even the governments and central banks who are trying so desperately to calm the world down.



A proposal from a citizen:


1. Bush should ask the NYSE to close down until Tuesday.

2. Bush and Cheney should resign and Nancy Pelosi should assume office long enough only to nominate a coalition replacement of a moderate pair of Senators like Lugar and Feinstein to fill out the terms of Bush and Cheney.

3. Paulson should be replaced with Warren Buffet or some other big name financier who has a clean record of hostility to unregulated paper speculation.

4. Before Tuesday, the new Secretary should announce plans to revamp the bailout package to funnel the relief money through the debtors to the holders of bad paper, rather than just bailing out the criminals and idiots who caused the crisis.

5. The new Secretary should take firm control of the entire banking and financial services sector of the American economy to make sure that businesses that need short term credit to function can keep their doors open.

6. Barack Obama and John McCain should sign a joint statement that whoever wins the election will aggressively push a legislative program of re-regulating the financial markets to make sure that the concept of credit-worthiness be re-established as a requirement to borrow money.






Do I think this will happen? Of course not.


My question is why not?



This is no joke. We may all be scrounging the streets for discarded hamburger buns in a couple of years.

[katty]

1. i won't happen, but some smart proposals-going, going, gone

gets worse everyday

[DaveT]

4. We can't amend the Constitution between now and tomorrow

morning.

But the biggest single aspect of this panic is the lame duckhood of Bush. He has no credibility, even with his own party.

With nobody in charge, panic now.

[katty]

15. yes, that's clear-this for another 3-4 wks?!!! very bad

[lutefisk]

2. That's a great proposal. Unfortunately, Junior's still in charege...n/t

[Warpy]

3. This is a PANIC

and panics don't typically last all that long. Will the market regain its former glory? Hell no, it was overvalued, hyperinflated in the 90s and propped up by putting this country into bankruptcy to funnel capital to the rich and corporate.

I don't know where the floor is. I said last winter I thought it would be around 7000 by the time we got rid of Stupid.

I've said since then that I hope I wasn't being overly optimistic.

[endarkenment]

6. The last panic of this magnitude took 25 years to recover.

I don't have that long.

[W_HAMILTON]

13. They news people on TV get giddy when the Dow is up 40 points.

This is a panic, but there seems to be no end in sight. It seems like there is no bottom, and there's no reason to think there will be a rally anytime soon. That's probably the worst part; they've done things, and it still hasn't done a thing to stop this. What will stop it? It may be a panic, but when is it going to end? When the Dow is at 4000?

[Warpy]

24. The mistake is to think this is a permanent condition

That's the kind of thinking that go so many people in trouble during the bubble market in housing. It's what got other people in trouble with the commodities bubble last spring. It's what drives so many other stupid financial decisions.

My own feeling is that the floor is about 7000. It can go lower than that floor, but will come back to it. Other estimates are from 5000 to 8300.

Remember, the only things changing are the numbers. If you own equities, you still own what you own. That hasn't changed.

[W_HAMILTON]

27. It's not permanent.

But who knows how long this will last? Again, we've dropped so much lately, that there isn't that much more to drop, I guess. Hell, another month or two of this and a "40 point increase" in the DOW will be like 50% :)

I didn't get out early enough, so I doubt I will now, unless there is really some hard times coming, ie, we all are screwed, massive unemployment, people becoming homeless, etc.

I'm sure the DOW will eventually go back up, but when? Tomorrow? In January? It won't be back up at the 14000 mark anytime soon, that's for sure. I'd be happy for these massive drops to just lessen or stop, but it seems like that is even too much to expect right now.

[Warpy]

30. There might be a sucker rally or two before election day

but don't expect much to happen unless systemic problems start to be addressed when the Democrats take real control of Congress, and that's a big "unless" right now. Our party is still full of foot dragging conservatives and everything will be an uphill battle unless it's all gone completely to hell and there is nothing left to lose but their jobs to an angry electorate.

[DaveT]

33. The stock markets by themselves are nowhere near the worst

aspects of this panic. These numbers will certainly go up someday -- it could be as early as tomorrow.

In 1929, after the Crash, the NYSE and other market numbers just kept falling day by day for years, not so rapidly or as dramatically as on the first day of the crash, but inexorably. Nobody was willing to buy in, no matter what the Hoover Administration and the Great Powers of Europe tried to do.



It is true that stocks are not that big of a deal to most people in their daily lives. Credit is, however. And this Panic parallels a simultaneous loss of confidence in the ability of debtors to pay back creditors, and that is why dramatic action is absolutely necessary.


By pure dumb luck, Adam Smith's dead hand could start a rally tomorrow morning and we could get enough breathing room to wait for the next Congress and the next President to address the underlying problems I mentioned in the OP concerning America's appetite for borrowed money.

But without pure dumb luck, we are on a slide very similar to 1929.


It seems to me that aware citizens of the world would be agitating for SOMETHING to happen.



Here at a relatively fringelike forum of discussion, you are not hearing much. People assume, I think, that what we think and say just does not matter. And most of the time it doesn't.

Doesn't that bother you, DU?

[SmileyRose]

35. oiy

every one of your posts I have ever read was what I call a "smart post". I don't know if it's your age or your mileage but you seem to always have a good handle on things. -- Or maybe it's that you seem to say what I'm thinking more eloquently than I can.

Anyways. :hi: and I hate to say I agree with you.

[Warpy]

42. Don't worry, I'll screw up eventually

Everybody does.

However, my reading has always come from history, not economics.

Neither is my field, but I've read them both for giggles.

[RB TexLa]

5. No thanks, too many buying opportunities. And all the volatility produces good day trading

opportunities.

[Better Believe It]

11. What Did You Buy 1 Month Ago And How's It Doing?

Did ya buy GM yesterday .... a great buying opportunity!

[RB TexLa]

17. Nothing I still hold.

Unless you count the profit. :)

[Better Believe It]

22. Oh .... I see. You're one of 3 day traders who has made money ....

in the stock market in the past month.

Sure you are.

[RB TexLa]

25. no problem

What you believe is not of any concern.

[Better Believe It]

31. If you claimed you're a short seller I might believe you.

They made money today.

[RB TexLa]

32. didn't say I made any today

But you go ahead and say that I said that anyway.

[Better Believe It]

34. Well You Could Have If You Had Been Short Selling!

So you think we should all run out and buy GM stock?

A good sound company that lasted during the last great depression.

Ahhhh .... I think I'll wait on that until GM becomes a penny stock .... perhaps I'll buy one or two shares when that happens.

[RB TexLa]

37. I think GM should be allowed to go out of business.

[barb162]

38. I don't want to get in the middle of this, but

Exxon was looking very reasonable today, around 68. No matter what anyone says, oil will be needed over the next few decades, even if Americans decide to stop taking long road trips in their Yukons and even if there is a deep recession.

[nadinbrzezinski]

7. Send this to the Banking committee, senate banking committee

[DaveT]

8. I wish that we could have a real policy discussion

about why we all "know" that nothing like this idea could possibly happen.

We can all be so smug and knowing about how the "real world" operates -- well, the real world is demonstrably insane. From Florida, through Iraq and Ohio and Katrina and Gitmo and FISA and habeas corpus -- and now on to the end of civilization as we know it -- and, well, what are you going to do?


When do we take action? Ever?

[DaveT]

9. Shameless kick in hopes of a

fifth vote. I think this needs to be discussed. Really.

[MadrasT]

10. I'll give it a 5th...

[Horse with no Name]

12. The banks need to close too n/t

[nadinbrzezinski]

14. Here is the precedent for this by the way

http://www.enotes.com/1930-government-politics-american-decades/financial-banking-crisis

FDR did it... and it needs to be done

[Selatius]

18. That will demand another FDR-caliber president. If Obama is not the person, we're out of luck.

I hope that Obama is that man. I hope he is the next fucking FDR.

[nadinbrzezinski]

21. He's been talking the talk... so he might (hope) walk the walk

[KamaAina]

26. Walk the walk?

FDR used a wheelchair.



That is one of a very few photographs showing him in the chair -- because he tried to hide his disability, fearing that people would perceive him as weak and unfit to lead.

Today many people are obsessing in a similar manner over Obama's race.

[nadinbrzezinski]

28. Talking Obama, not FDR.. I also kNOW where he earned that wheelchair

and why.

That said recent speeches are starting to sound very much Rooseveltian

[ProdigalJunkMail]

16. i think they might have to stop trading tomorrow around

2:30PM...Lehman's credit default swaps are on the table tomorrow and by 2:00PM we should know how bad the losses will be...if it is as bad as I think it will be then we will be looking at a large selloff starting at 2:00PM or slightly before...

sP

[anigbrowl]

20. That's what I am expecting.

Lehman auction #s will be applied to bank balance sheets. Talking heads are slinging around #s like 12 or 15 cents on the dollar. That would be bad, but a fair amount of it is priced in to the market already. What worries me is if there are no buyers or the first securities don't break $0.10. In that case, trading may get suspended. No bids in the first 1/2 hour = friday bank holiday.

[ProdigalJunkMail]

23. should be a sickening roller coaster between now and then

but i think that with the final nail in the coffin tomorrow we will see some investors starting to stick their little toe into the waters to see if their foot doesn't get ripped off...

sP

[Tigermoose]

19. This isn't just about fear. It's logical.

Banks can't loan because they are over-exposed in their lending. They are now trying to hoard cash in order to meet their obligations without going under. If Paulson and company can buy the toxic assets and lessen the banks' exposure, they can once again lend money and investors will stop freaking out and buy the stocks at bargain prices.

This isn't about fear, but a very real situation where banks cannot cover their existing loans and thus are holding on to their cash. They cannot cover their loans because their assets are a wreck due to the toxic securities situation and massive leveraging. I think the U. S. is going to have to follow the UK example and take equity ownership of the companies and thus give an infusion of cash that will allow these banks to cover their existing loans. They won't be able to cover all, thus there will still be deleveraging, but the sooner this happens the sooner we hit bottom and rebuild.

[DaveT]

40. nothing on earth is more logical than fear

[Geek_Girl]

29. I think 4 & 5 could happen

I don't think Bush and Cheney should resign. It would be nice to see 4 & 5 happen while they are still in office. That way all the GOP purist can't blame the dems for nationalizing the financial institutions and this also insures an Obama win. Most repukes and some moderates would be against this and they will be even less likely to show up to vote for McCain.

This is what I think should happen. Obama will most likely win so he needs to start putting together a Task force/brain trust ie (Warren Buffet) now to work with the current Treasurer. Making sure Paulson does what needs to be done and to be a watchdog. Once he's in office his team will be in place to clean up any loose ends or bullshit.

[barb162]

36. Your comment

"We may all be scrounging the streets for discarded hamburger buns in a couple of years."

I'm hoping foreclosed unemployed families won't be freezing in their cars this winter.

[DaveT]

39. What is it going to take to make people wake up to this?

http://news.yahoo.com/s/ap/20081010/ap_on_bi_ge/world_markets

Asian markets plunge after huge Wall Street losses

TOKYO - A massive sell-off on Wall Street and escalating fears of a global recession sent Asian stocks plunging Friday, with Japan's benchmark index plunging more than 10 percent.

"Selling is unstoppable in New York and Tokyo," said Yutaka Miura, senior strategist at Shinko Securities Co. Ltd. in Tokyo. "Investors were gripped by fear."

Markets in Hong Kong, Australia, South Korea, Thailand and the Philippines were all down more than 7 percent. Shanghai's index was down 3.8 percent.

Indonesian authorities suspended trading indefinitely on the Jakarta Stock Exchange after they had halted trading Wednesday when the index plunged more than 21 percent over three days earlier this week.

The Indonesian authorities have enough sense to stop this madness, but the rest of the world stumbles on blindly as if it were business as usual.

How many more days of this will it take?

I watched Olbermann and Maddow tonight, and both noted the big losses on Wall Street in passing as part of their regular shows. The MSN of course provides big headlines, but this developing story is just another story like a typhoon in the Indian Ocean or an earthquake in a mid sized west coast city.

Nothing would make me feel happier than to be proven a Chicken Little by the end of this global sell off.

I guess the world is numb.

[DaveT]

41. Paul Krugman says action must come NOW

http://www.nytimes.com/2008/10/10/opinion/10krugman.html?_r=2&oref=slogin&oref=slogin

Moment of Truth
By PAUL KRUGMAN

Last month, when the U.S. Treasury Department allowed Lehman Brothers to fail, I wrote that Henry Paulson, the Treasury secretary, was playing financial Russian roulette. Sure enough, there was a bullet in that chamber: Lehman’s failure caused the world financial crisis, already severe, to get much, much worse.

The consequences of Lehman’s fall were apparent within days, yet key policy players have largely wasted the past four weeks. Now they’ve reached a moment of truth: They’d better do something soon — in fact, they’d better announce a coordinated rescue plan this weekend — or the world economy may well experience its worst slump since the Great Depression.

[WhiteTara]

43. thanks Dave,

I'm going to see my congressman on Sunday and I think that I will propose this to him. I'll let you know what he says.