Great Depression on Wall Street? U.S. Markets Make for worse, and cry for aid
Great Depression on Wall Street? US Markets Make for worse, and cry for help. Economic policymakers of the G-7 industrialized nations meet in Washington this weekend. If they don’t have their own blueprint for action, Roubini just gave them one.
If ever there was a setup for a Black Friday on Wall Street, this is it.
We can hope it doesn’t happen. But better that investors are realistic about the risks. Global markets and the world economy are at a dangerous point in this debt-fueled debacle, and anyone who says otherwise is a liar.
On Thursday the U.S. stock market suffered its seventh straight loss, and the 7.3% drop in the Dow Jones industrial average — down 678.91 points to a five-year low of 8,579.19 — was the biggest yet in this latest sell-off.
In other words, the get-me-out-at-any-price mentality is more intense than even a few days ago. Many people are morose, demoralized, desperate. They can’t take any more.
“Investors are in survival mode,” said Robert Bissell, chief investment officer at Wells Capital Management in Los Angeles. “Stocks of major companies are at ridiculous prices,” he said, but no one cares. “This is what panics are all about.”
Much of the selling now is forced: Hedge fund managers may not want to let stocks go at these prices, but their clients want their money back. Ditto for mutual fund managers, who are facing a surge in redemptions. Selling begets more selling.
There wasn’t much new in U.S. markets Thursday, and that was the problem. Credit markets remain mostly frozen, as wary banks still refuse to lend to one another despite the federal government’s attempts to break that logjam.
The plan for the Treasury to buy up $700 billion in bad loans from banks now is roundly viewed as too little, too late, or just wrong-headed. Critics say it won’t get the banks to lend again any time soon.
New reports from Washington on Thursday said the Treasury might try another approach: injecting capital directly into banks. Yet that revelation also failed to lift market sentiment.
Coordinated, but modest, interest rate cuts by the world’s major central banks Wednesday didn’t work either.
Maybe it’s time to start listening to people other than the same ones who let things get to this point.
Nouriel Roubini, an economics professor at New York University and head of Roubini Global Economics, over the last two years has predicted much of what has since come to pass. His critics dismissed him as Dr. Doom; now they wish they had heeded him.
Roubini is warning that the world has reached the brink of financial and economic calamity. This is from an e-mail he sent to clients late Thursday:
At this point the risk of an imminent stock market crash — like the one-day collapse of 20%-plus in U.S. stock prices in 1987 — cannot be ruled out as the financial system is breaking down, panic and lack of confidence in any counterparty is sharply rising and the investors have totally lost faith in the ability of policy authorities to control this meltdown.
When in markets that are clearly way oversold, even the most radical policy actions don’t provide rallies or relief to market participants. You know that you are one step away from a market crash and a systemic financial sector and corporate sector collapse. A vicious circle of deleveraging, asset collapses, margin calls and cascading falls in asset prices well below falling fundamentals, and panic is now underway.
He says governments have no choice but to take much more dramatic steps — in unison — to try to restore confidence. His list includes:
– another round of interest rates cuts by central banks, at least 1.5 percentage points in size.
– a temporary blanket guarantee of all bank deposits.
– a “rapid reduction of the debt burden of insolvent households preceded by a temporary freeze on all foreclosures.”
– a “massive direct government fiscal stimulus package that includes public works, infrastructure spending, unemployment benefits, tax rebates to lower income households and provision of grants to strapped and crunched state and local government.”
– government recapitalization of financial institutions and a reduction of the debt burden of distressed borrowers.
Economic policymakers of the G-7 industrialized nations meet in Washington this weekend. If they don’t have their own blueprint for action, Roubini just gave them one.
The following are just comments. Please leave your views afterwards:
My comment/question here the other day about Jim Cramer calling a bottom was perhaps made out of ignorance, of which I have plenty.
Here’s my question now: For those who have been in cash for quite some time now, what’s the best way to get into the market as a bottom nears?
Dollar cost average in — into what? Individual stocks? ETFs, mutual funds?
Whom to ask for help? Most people have no idea where to begin.
Vanguard, for instance, will do a cookie-cutter plan, for a fee that depends on how much you have with them. Some experts would say that a cookie plan from Vanguard is much better than doing nothing or sticking with a stock broker. Is it?
Mr. Petruno is the one financial journalist I trust with this question.
I SAW A COMMENT WHERE YOU BLAMED THIS ON THE ELECTION? ARE YOU OUT OF YOUR MIND!!!! GREED IS THE PROBLEM. THE MARKET IS JUST BALANCING ITSELF OUT FROM YEARS OF RIDING THE BULL BUT TO CLAIM SOMEONE IS A MARXIST AND A MESSIAH IN THE SAME PHRASE IS ABSOLUTE STUPIDITY. OUR INFRASTUCTURE IS NOT SOUND! AND THE QUICKER WE INVEST IN REVAMPING IT, THE MORE JOBS, MONEY AND BETTER THE US WOULD BE. I CAN’T BELIEVE YOU WOULD BLAME SOMEONE WHO SUPPOSE TO BE “A NEW KID” ON THE SCENE FOR THIS MESS. HOW ABOUT THE POLITIANS WHO HAVE MAJOR INVESTMENTS IN EXXON, JPM, AIG, CITI, WHO CAN’T BARE TO SAY THE TRUTH B/C THEY KNOW THEY WOULDN’T HAVE A FIGHTING CHANCE. HOW ABOUT THE POLICTIANS WHO WERE TEXTING THEIR BUDDIES(CEO’S OF MAJOR COMPANIES) LETTING THEM KNOW THEY CAN BREATH B/C THE BAILOUT IS GOING THROUGH. OUR GOVERNMENT WASN’T BASED UPON VALUES, IT WAS BASED UPON CORRUPTION. AND IT IS ABOUT TIME THAT WE HAVE SOME ACTUAL PEOPLE IN OFFICE AND NOT PUPPETS.
“freeze on all consumer debt payments including mortgages” - are you kidding me? We are in this mess because people spend money they don’t have. New car every year - big screen TV - the McMansion. The people living beyond their means should be allowed to crash and burn. I don’t have a new car each year and live in a house I can afford - why should I have to pay for the toys of the reckless spenders now that they can’t pay for them on their own.
Ahhh, so NOW the media starts paying attention to Roubini. Shame it didn’t start back at the BEGINNING of the crisis - instead of just labeling him Dr Doom and mocking him. Maybe the politicos will finally even consider asking him for advice, rather than simply relying on the people who got us to this state….
The inexorable laws of economics are leading us to worthless money, no-value assets and debt that is unimaginable and unpayable! Half-measures like bailouts will merely prolong the ever-deepening agony. UN should convene a new Bretton Woods Conference of G8 plus China, India, IMF, World Bank and WTO. With a global economic freeze to calm things -temporarily nationalising everything without payment and cancellling all debts- we can start again with a new agreed international basis for currency, markets, business, international relations, international law and trade. The new basis of value cannot rely on the dollar which has been wantonly destroyed. The new basis must be the value of the one thing that is permanent and indestructible - all the land on earth.
The free market was like a drunken party — out of control. Cutting off the flow of booze, throwing out the most rowdy players, and if necessary imposing a curfew is not necessarily the end of life as we know it… or the end of partying.
Some things don’t work. Credit to uncreditworthy borrowers, for example. Duh.
It was past time for a “get real” wake-up call, painful as it is. The fear will stop when it becomes clear that there are basics still there we can count on. You know, supply, demand. Rules that cut off the liquor to the drunkest guests. We’ll still have a hangover but we’ll get over it.
Thanks GW, it could be worse, just imagine if we would of taken the brilliant idea of GW and replace SS with the stock market, there would be riots in the street by now. I am a Republican and please vote this illiterate pathetic moron and McCain the same out of office. Please send him back to Texas where he blends.
FINANCIAL CRISIS: THE MUSICAL
The economy is no laughing matter. But this parody about the economy is.
Windfall had a lot of it right with a few exceptions. Bush did not practice diversity by allowing the unqualified to receive loans because of affirmative action. He, Rove, and Cheney directed Greenspan to reduce interest rates so that the booming economy of the 90’s, fueled by computers and the internet, would not decline under a Republican. This encouraged the housing industry to do anything and everything they wanted including making some very bad lending decisions.
As far as Obama being a Marxist, that seems a little simplistic. Maybe he is, maybe not. What I have seen, though, is that all Presidents seem to do about the same thing, no matter what party they belong to, in response to events they encounter. It has been a very long time since we have had a leader who knows where he is going and takes us with him.
THE DEMOCRATICS ARE 100% THE BLAME FOR THIS GLOBAL MARKET
CRASH,BY PLAYING GAMES FOR 2 WEEKS WITH THE 700 BILLION BAILOUT. I HAVE BEEN A DEMORCRAT VOTER FOR THE LAST 30 YEARS.
THIS YEAR I AM GOING TO VOTE REPUBLICAN ALL THE WAY!!!!!!!!!!!!
I HAVE LOST MY LIFE SAVING BECAUSE OF THE DEMORCRATS!If the gov’t waves its magic wand and dismisses all consumer debt, does this mean that consumers have to give back the Range Rovers, flat-screens, Jimmy Choo’s, and all the other assorted bling they’ve padded their (now underwater) nests with for the past 8+ years?
Yes, we are soon rid of the feeble-minded simpleton bush, and the repub neo-convicts (oh, how we WISH!!!) but then, I look and see Pelosi, Reid, Blarney Frank, Chris Dodd, LIEberman, Boxer and Feinstein….THIS will be better?????
We have 1 chance to truly express our wrath; VOTE AGAINST EVERY INCUMBENT! (Sorry, Waxman….but ‘YOUR’ Party is GUILTY as ‘ell, too!) The dems have had too much power for far too long; anyone over 35 KNOWS how far Calif has sunk into an abyss, created by sniveling dems. How many welfare recipients now have Govt jobs? How many got a Govt credit card for ‘expenses?’ And how many Detroit garbage scows are they driving, on YOUR taxpayer dollar??? We shudder, to think about THAT!!!
Capitalism, the impostor of universal wealth creation and where it has to be replaced with a universal humane and sustainable value system
Isn’t it now perfectly clear that governments do not run the world but the rich and powerful? For now as investors (the rich) pull out their capital from stock markets all around the world, the global economy is in free-fall, punishing most of humanity in the process. Therefore the ‘capitalist’ system as an economic system is highly unstable and volatile. For what they do affects us all through capitalism and super-capitalism (globalization) and the effects brought about by them alone. This system is therefore bankrupt in human development terms, as when it goes wrong it harms everyone on this planet except the very few rich who undeniably perpetrate this harm on humanity. Therefore when we are all over this human disaster, governments around the world have to change the economics of the world from basically just being there for the rich to that of human sustainability and need. If we do not, the world will continue to be enslaved by capitalism, which makes the very few rich beyond their wildest dreams and the majority unsustainable. In this respect over half the world is still living in poverty and more will be doing so in the future due to the dictates of the capitalist market system. It is the majority of humankind therefore who really suffer when things in this system fail, go so very wrong and where the few who instigated the problem get off scot-free. At the end of this month, if anyone is interested, the WIFC is publishing the ‘independent’ reasoning of some of the world’s most eminent independent thinkers on what can replace our present economic system. It will be published on Press TV. But overall, we have to change completely for our own good, our mere existence and for the lives that our young will now inherit, or may be not.
Dr David Hill
World Innovation Foundation Charity (WIFC)
Bern, Switzerland
Ps. To show that the system is so good for the few I noticed today that Aston martin’s new One-77, the most expensive road car in the world at $2 million a go, is oversubscribed already although it has only just been unveiled this week at the Paris motor show. this shows the system for what it really is and where the rich have no problems and we the majority have them all.
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