The Idiocy of Wall Street: Applauding Its Own Demise


The vertigo factor in the last two weeks of the stock market has been high: down 400 points, down 400 points, up 400 points, down 400 points, up… Which is it, one wants to know, because to have the answer as to the state of the future would relieve anxiety in the short run, even though the things we do to relieve short-run anxiety often cause long-term calamity.

Things like nationalizing the finance industry of the United States, which is, effectively speaking, the consequence of Federal Reserve and Treasury actions of the last two days.

The humor factor in the rally of last week has been far higher than the vertigo factor, however, as Wall Street bizarrely applauds the nationalization of the finance industry. I like to be less anxious, but not at the expense of socialism – or more likely fascism, the latter of which (when you listen carefully to the drumbeat for war with target of the month, Pakistan) is the clear direction of US policy.

Maybe former Treasury Secretary Paul O’Neil was right about those guys in front of the green trading screens on Wall Street being trained monkeys, because the actions and announcements emanating from the federal government have been anything but good for the wealth-creation mechanisms of capitalism, or for the future of liberty for that matter.

We were told less than six weeks ago by the Congressional Budget Office that the taxpayers may have to spend up to $25 billion dollars bailing out Fannie Mae and Freddie Mac. Secretary Paulson and Federal Reserve Chairman Bernanke assured us that beyond that, all was well. Why is anyone still listening to Paulson and Bernanke?

The announced bailout plans six weeks later have costs that Paulson and Bernanke now admit will run at least into the hundreds of billions of dollars. But why is anyone still listening to Paulson and Bernanke?

Given the economics discussed below, and the government’s lack of credibility to date, the real costs will now clearly run into the high trillions. The question is, who will get stuck with the losses and how will that loss-distribution process be handled? For Wall Street to applaud the prospect of the upcoming events is lunacy. Why is anyone listening to Paulson and Bernanke?

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September 25, 2008