It was a perfectly reasonable question, and on the surface it seemed like a perfectly reasonable answer. But when Senate Banking Committee Chairman Chris Dodd went on Bloomberg TV Friday and mused about the possibility of bank nationalization, panicked investors sent the Dow plummeting a hundred points in the next hour.
Whoops.
[]
“Sen. Dodd’s ‘nationalization’ comment wins the Oscar for most irresponsible remark by a U.S. official,” said Tony Fratto, a financial spokesman at the White House and the Treasury Department during the Bush years. “The last thing markets need is to have officials speculating about hypothetical policy choices.”
On the other hand, what Dodd said — like what Schumer said last summer — had the advantage of being true.
I understand that every time the market takes a big drop trillions of dollars evaporate from the face of the planet and people already worried about their economic future become even more concerned, and politicians should certainly not speak recklessly. But there is a logic flaw embedded in the idea that its overall health is a function of the direction in which the Dow is heading, and that nobody should be saying or doing anything to drive it down. As if the market is some wise arbiter of sound policy hovering over the financial crisis and not riddled with the same termite holes that plague the beleaguered banking system.
Having the courage to take action to restore the integrity of the market means doing things that will depress in the short term. If it doesn’t go down when it has to swallow the bitter pills of regulation or bank nationalization, you’re doing something wrong.
Letting the market decide what is and what is not sound policy is like disciplining your kids based on how well they like it.
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Fabulous!!
Considering that most floor traders are rabid wingnuts, it’s especially important not to let them dictate our nation’s fiscal policies.
agreed. great. 25 years ago Reaga would just say :”It’s not what wall street thinks that matters. It’s what main Street thinks.” or something like that. and everybody would pronounce him a genius. today, that would be “irresponsible”?
But there is a logic flaw embedded in the idea
———————-
the WHOLE DEREGULATED market is flawed,they have inadvertently killed the goose laying the platinum parachutes
Letting the market decide what is and what is not sound policy is like disciplining your kids based on how well they like it.
Exactly. Like saying we love how badly you’ve screwed our financial system, we want more…. Geez.
Kind of like “Don’t Mention the War“, isn’t it?
Yeah, I don’t recall having electing them to represent me.
Thank you soooo much for this post, Jane. I think it was Biden economic advisor (sorry, can’t recall name) who said “it’s about paychecks, not portfolios”. And words like “we’re not going to judge the success of our recovery plan by a daily uptick of the market.”
As I flip back & forth between hearings and cnbc, I find no discussion on the latter about the true state of the economy and how it is influencing stock prices. There is a surplus of technical analysts all trying to pick the bottom, based solely on statistical analysis of post-WWII stock market cycles and other technical indicators, completely divorced from the state of the economy and corporate profits. The economists have uniform forecasts, like the FRB, that economic recovery will begin later this year, based on stimulative policy, accompanied by no analysis of whether the policy moves are in any way commensurate with the magnitude of the problem. A complete state of denial. In that environment, any further downward move of stock prices must be due to a shortfall in what Obama, Geithner, Bernanke said yesterday.
oh and remember to be
VERRRRRRRRRRY skeeeerd …to tell the truth
Crack addicts usually are not the first to perceive any problems or care.
yup,pass the pipe
OT: “Bipartisan” means Faustian.
You know, this may be a weird story to share right now, but there are some upsides to these economic times.
Many people who do live reasonably within their means can buy those quality items they have put off purchasing.
Also, a new US Formula 1 racing team is being developed that would have laughed off during the boom times has now been announced (paging bmaz!). They always wanted to run it lean and mean and now they have the opportunity to do it the way they want to, selling smaller stakes in the team in order to maintain direction and control.
So people who are looking for smaller investments might be interested in your right-sized ideas now.
the marketeers ares spoiled brats .. they’ve had their way .. cooking the books and using strange new paper vehicles to jack up their returns for years .. they built a house of cards ..and now it’s collapsed on itself .. and it pains them to realize their little piggy bank is now broken beyond repair .. they simply don’t want to internalize the fact that “it’s over” ..
“Letting the market decide what is and what is not sound policy is like disciplining your kids based on how well they like it.”
Not realistic. In a free market system, the markets decide what’s true and what’s not true, because as we all know, everybody in the financial industry tells the truth consistently, and creates their own reality.
We have this on good authority, from no less that a former assistant to the president, who was a responsible public servant, and also consistently told the truth.
I haven’t forgotten you. I’m just verrrrrrry slow!!
Fratto is right. It’s only responsible to talk about nationalization when Lindsey Graham argues for it on ABC’s This Week, or when Greenspan says it in a widely-reported speech. IOKIYAR.
Yowza! There’s something to think about!!
They haven’t figured out that they are no longer masters of the universe. Or maybe, with Bernanke, Geithner, and Summers in place, they still are masters of the universe.
i’m going to bet it wasn’t nasdaq’s or the dow’s reaction that has them spooked…
clinton is supposed to have said his first year in office (it came from woodward so who knows):
Hinojosa asks Bernanke whether GLB should be reversed. Bernanke sez free standing investment banks didn’t do well either.
but what if now that homes are worth so much less then the loan, even prime borrowwers
ok, still just guessing here… but i bet greenspan doesn’t mean the same thing you and i do when he says “nationalization.” (see bernhard’s post re pimco)
even
What how many times has Bush talked about the economy and the Dow dropped?
i don’t give a FF what nice stuff krugman says about bernanke. that answer was total bullshit. the question is not about what works best for investment banks – it’s about what works best for the real economy and if bernanke doesn’t get that he’s hopeless. argh!!!
Annoying as it is to those who are the arbiters of risk in a wheel of fortune that is anything but risky, so sorry that your choice is filled with everything but absolute loss, I wish you more of what is every day expected.
Well said.
If Dodd says something rational, the stock market goes down. If Bernanke says something stupid, then it goes up. And Obama? He gave a good speech and the market went down. It is all rather beside the point of what is needed.
If a policy will work, are we supposed to let hysterics on Wall Street torpedo it? If Wall Street is so good on deciding policy, how did it create this mess?
eCahn is right. We need to be looking at what is necessary and dispense wth the theatrics.
Bernanke’s been terrible in these last 2 days, and everyone I’ve seen has let him get away with it. Short Bernanke: We have all the power we need to supervise banks. The real Q to ask after that is: Is that the same supervisory power you used before the debacle? And no one has asked it.
I keep trying to leave (typical MN goodbye), and then I find something that begs to be shared with you. This from Paul Krugman’s blog today re the GOP:
Searching for meaning in short term stock market moves is silly. Tea leaves are as informative and you get a nice beverage.
Funny I say the Market went down because Obama wasn’t Left enough:)
Not that he was telling the truth the market couldn’t bear Pleas to Lie to Me are sure signs of desperate.
The GOP knows that Desperate in not attractive unless your looking for easy
but really hard to get rid of.
i don’t even have the heart to listen today. just too depressing.
heh heh. heh heh.
And his point is? OK, I doubt that he had a point. Investment banks got into trouble because they bought politicians and got laws passed for their own deregulation.
The lesson is they need to be regulated. And by the very nature of what they do, their risks should be separated from normal banks. If they want to gamble (under regulation), that’s their business, but why should it be their depositors’?
The idea of Tony Fratto having any credibility to lecture anyone on anything rather boggles the mind.
After all, he managed to make Pig Missile sound coherent these last few years.
Jindal as Butthead, McCain as Beavis
OK. May I blurt???
“Smart” Wall Street people like Peter Lynch and Warren Buffett, etc., have said over and over again for yyyyears to buy what you know, what businesses you are familiar and HOLD THE STOCK.
IOW, you don’t do the nervous nellie thing of buying and selling on a daily basis. You see how it performs OVER TIME. Sheiss!!! what idiots!!!
Thank you! A thousand times, thank you, Jane!
And that thank is from a parent who says, “No,” when needed and sets limits.
More of this please Senator Dodd.
Tony Fratto, you hold Bush’s hand in terms of getting us into this mess that Obama and Dodd, in their responsible respect for society, will clean up. So, zip it or get a mop and start being responsible.
Great point, Fratto was a mindless Bushbot. Why anyone would quote him on anything is beyond me.
I’m listening to Greenwald being interviewed by Scott Horton. They’re going over Obama record to date on executive privilege, torture, rendition, etc.
Should be:
that thanks…
A round of “pre three” coffee needed.
Right. Bernanke’s A was completely nonresponsive, almost a non sequitor.
This true because the value of shares and the DOW are not based on actual value of the companies, but on “feelings” and “psychology”. It no different that bluffing at cards.
Shares need to be valued at the actual worth of the companies they represent and get away from all the abstractions and trends.
Be smart – don’t bother with shares.
How is it that anyone could actually believe the stock market is in any way rational these days? Any analysis performed by the traders is about as sophisticated as dropping a fat roll of bills on #7 and spinning the wheel. If a few relatively tame remarks can send the market into a nosedive, then what does that tell us about the overall competence of those at the controls?
Who decides why the market is going down? There was bad news this am that housing sales fell off significantly but this is not deemed as causal. Last week asian markets crashed and Japan came out with really bad data yet none of this was deemed as causal. WTF
At the end of the day reality is what reality is. If we have to take over the banks to save the nation than so be it. It must be done. The banks can than be sold back to those who want them, if they can be found. Of course they can always be found. There will always be those who want something for nothing.
“I keep trying to leave (typical MN goodbye), and then I find something that begs to be shared with you. This from Paul Krugman’s blog today re the GOP:
The party of ideas has become the party of Beavis and Butthead.”
And your comment begs me to note the insult to B and B.
very funny, thank you…..
The root cause is the lobbying in Washington. Financial regulation/deregulation is just one of the consequences. The same applies to Farm Subsidies (subsiding unhealthy foods), Defense contracting (buying expensive weapons for urban warfare, those B2 bombers are so effective at street level, and that navy, done well against pirates in
rowspeed boats), transportation (why more roads? the car is clearly both damaging and on life support), and so on.We have a systemic failure in Washington. Let’s address the real cause, not just fiddling around at the edges.
I have been throwing together some things for an oxdown diary on what I call the “Economic terrorists.”
When we say the stock market goes up or down, we have to understand that a majority of trades on any given day are made by a relatively small number of hedge funds, most of whose names few of us have ever heard of.
And frankly, who cares? I certainly don’t.
I’m different. I want to know who the players are who shape the world for good or bad in which I live.
Thanks, Jane!
Runnning the country based on the reaction of Wall Streeters is what got us into this fix.
The ”Free Market” ideal requires an UNFOUNDED belief in the ”Wisdom” of the markets. The markets are stupid though ~ see, like a computer! The markets only ”know” what they must believe to make money! And it’s just a form of gambling, unfortunately, with all kinds of statistics and words and charts. It’s money. It’s sales. Not much different from baseball, really. Unless you count the skill that is required to play baseball. My financial advisor is only a glorified salesperson: I have known this for a long time. Counting on them to watch my back is insane.
This is the big lie we are facing. Look at all the time the smart people here are spending understanding all of this. The market ”knows” far less than all of that. And it cares only about money. Not truth. Or compassion.
In my outsider analysis, I believe the bonuses are about nothing except keeping control of client lists. Has anyone seen that reported/suggested anywhere? If a financial agent leaves, many of their clients move with them or elsewhere. That’s the real capital in a financial firm: the accounts.
In related news, Merrill Lynch just lost $500 million more than BofA had projected. How much was ML’s bonus bill this quarter?
Capitalism can’t regulate rapidly evolving technological societies. The problem Obama faces on every front is the general opposition to change even if our lives literally depend on changing. We stick with internal combustion engines although their dangers are widely noted. Health care remains a mess because that mess is someone’s livlihood. They resist losing their jobs no matter how great society’s gain.
Stock markets are another illustration of the process at work. Traders are lillies of the field, they toil not neither do they spin, yet we consider them significant. As for regulation, when you regulate greed you take the fun out. That’s why taxing the wealthy is whispered. It’s crazy because no matter what the outcome, everyone dies. When we realize the game has no point, we may start thinking of alternatives. Right now it’s not likely.
But…but… isn’t that one of the Republican Party’s core values?
Bob in HI
“I have been throwing together some things for an oxdown diary on what I call the “Economic terrorists.”
When we say the stock market goes up or down, we have to understand that a majority of trades on any given day are made by a relatively small number of hedge funds, most of whose names few of us have ever heard of.”
Good idea. The open trading floors of the Stock, financial(derivatives?) and commodity markets give the illusion of transparency. They are anything but. Some real sunlight would help demystify and bring out opportunities to make them more responsible.
I thank Dodd for speaking truth. Remember the Overton Window? Dodd was moving it– which is exactly what needed to happen.
Thanks, Jane, for this report.
Bob in HI
Yeah. really
Yup. If you ever wanted to get a piece of GM, now’s the time to do it. Shares are unbelieveably cheap right now — less than $2 each, so you can buy up a hundred shares for under $200. If you guessed wrong, you’re only out the price of an iPod. If you guessed right, your retirement is nicely funded.
Thanks, Hugh. That’s a great idea. It’s good to have useful information like this on hand, because it makes us far less easily rolled by con artists. There is no easier mark than the ignorant cynic — he or she falls for every silly conspiracy theory that comes down the pike, which means they make all sorts of silly whiny distracting noises and then wonder why they’ve been banished to the kiddie table.
Thanks Hugh, can’t wait to read it !
This is exactly what’s needed, and why the markets are going down these days.
They know sunlight’s coming and they’re stealing all they can now before the cops show up.
There is no reason (other than the hedge fundies) for markets to be going down these days; we’ve known we’re in a recession for months now, and billions of dollars have been put into stabilizing the system since the November lows when we were told “the financial sky is falling”.
Normal buying patterns would dictate that large mutual funds and pensions would be buying right now with both hands; after all, if you liked Proctor & Gamble at $70, you should love it at $50/share.
They aren’t buying because the hedge funds still rule the roost, and can still murder any stock just because they want to.
Until this changes, no significant buying interest will exist, and therefore many more down days lay ahead.
The new regulations on financial services companies can’t get here soon enough.