The current market mess we find ourselves in has a lot of blame to spread around. However, there are a few folks who might benefit from career changes. Some already have succumbed to early termination (Freddie and Fannie heads, for example).
I'm not one to get too much into politics on this site; I leave that to my alter-ego over at Rants for that (not for the faint of heart). This case, unsurprisingly, lends itself to a political perspective.
Way back in the '30s, the federal government put in measures to protect the market in cases of rapid sell-offs and manias. In essence, if the market rose or fell too fast, systems were in place to bridle the market's enthusiasm. The measures didn't necessarily stop the trend (though, in some cases, the market for a particular stock was shut down briefly), but it slowed them down. Over time, additional measures were instilled as market experts learned how to have a mostly "free market" with a lot less volatility than in the past.
AIG got into a big mess (a liquidity crisis) when its stock fell from about $20 to $1.43 in a matter of a few days. Word got around that the company was in dire straits and needed to raise money. Rather than a gradual fall in its stock price, AIG found its stock price falling precipitously, so much so, and so rapidly, that it couldn't possibly sell any of its $1 TRILLION in assets for anything near their worth. As an example, AIG closed at $12.14 on 9/12 and fell to $1.43 shortly after opening on 9/16. AIG lost 88 percent of its value in barely one full trading day, folks.
The stock, no doubt, was in trouble. So, too, was the company. The faltering stock market and economy didn't help, either. It was a perfect storm. But did the storm get out of hand? Could something have been done to stop it?
Perhaps.
Perhaps not.
We've had market crashes and falls before. I got my feet wet as an observer of a market crash in 1987. I wasn't around for the '29 Crash. The 90s saw some pretty good falls, too. We had some more in the early part of this decade.
But I've never seen companies crash and burn so quickly as I've seen recently. I wasn't really paying attention to the S&L crisis when it happened. But I have yet to hear anybody compare that era with this one in terms of the rapidity of failure.
Times will get better. But I digress.
You want a scapegoat. So do I. It's you. And it's greed. And it's stupid guys put in office who are dumber than dirt.
Like Chris Cox.
Put in office as the head of the Securities and Exchange Commission by President Bush in 2005, Cox, who's resume looks not much better than Michael "Heckuva Job" Brown (former -- and disgraced -- head of FEMA during Hurricane Katrina, who's greatest claim to fame pre Katrina was as a horse judge, whatever that means):
Cox sought to make the stock market "freer."
So he stopped enforcing the rules and relaxed the systems put in place to protect the market from too much momentum.
It's the momentum that kills, not the downward pressure on prices. Let's go back to AIG. Had they enough time to sell off a few pieces of their business (remember, they had $1 trillion in assets), they could have met their short-term obligations and the government would not have had to come in to rescue them with a bridge loan.
You know who pays for government bailouts? You and me.
Specifically, the rules have been in place for a long time prohibiting naked short selling (according to Wiki):
The "short sellers" have obliterated this market. They are to blame. Now, I'm not saying that they don't play a vital role in making the markets work; however, what I am saying is that left to their own devices, people with bad intentions, or not so good intentions, can effect bad outcomes.
They're jackals killing a wounded lion. I suppose for all the "free marketeers" that the stock market is like the jungle. But for most of us, whose retirements count on the stock market (after all, it's been the government whoring out the 401k and IRAs), it's not a jungle. Sure, it has its pitfalls, but there are rules to play by.
And nobody's playing by them. Or, worse yet, the rules were changed and we didn't even know about it.
So, in short, President Bush appointed another friend with zero experience and intelligence in a high position of power and we got hosed because of it. "Brownie, meet Mr. Cox."
I'm not saying the market would be fine and dandy, but it surely would not have fallen so far so fast.
Of course, now that John McCain has announced he'd fire Mr. Cox, the media has jumped on the bandwagon. Here are some stories from around the 'net.
SEC's Cox Catches Blame for Financial Crisis
McCain says he would fire SEC head Christopher Cox
Fire Christopher Cox?
SEC Issues Temporary Ban on Short-Selling
Bush backs SEC's Cox after McCain says would fire him
Financial Crisis and Short-Selling
I'm not one to get too much into politics on this site; I leave that to my alter-ego over at Rants for that (not for the faint of heart). This case, unsurprisingly, lends itself to a political perspective.
Way back in the '30s, the federal government put in measures to protect the market in cases of rapid sell-offs and manias. In essence, if the market rose or fell too fast, systems were in place to bridle the market's enthusiasm. The measures didn't necessarily stop the trend (though, in some cases, the market for a particular stock was shut down briefly), but it slowed them down. Over time, additional measures were instilled as market experts learned how to have a mostly "free market" with a lot less volatility than in the past.
AIG got into a big mess (a liquidity crisis) when its stock fell from about $20 to $1.43 in a matter of a few days. Word got around that the company was in dire straits and needed to raise money. Rather than a gradual fall in its stock price, AIG found its stock price falling precipitously, so much so, and so rapidly, that it couldn't possibly sell any of its $1 TRILLION in assets for anything near their worth. As an example, AIG closed at $12.14 on 9/12 and fell to $1.43 shortly after opening on 9/16. AIG lost 88 percent of its value in barely one full trading day, folks.
The stock, no doubt, was in trouble. So, too, was the company. The faltering stock market and economy didn't help, either. It was a perfect storm. But did the storm get out of hand? Could something have been done to stop it?
Perhaps.
Perhaps not.
We've had market crashes and falls before. I got my feet wet as an observer of a market crash in 1987. I wasn't around for the '29 Crash. The 90s saw some pretty good falls, too. We had some more in the early part of this decade.
But I've never seen companies crash and burn so quickly as I've seen recently. I wasn't really paying attention to the S&L crisis when it happened. But I have yet to hear anybody compare that era with this one in terms of the rapidity of failure.
- Lehman, bankrupt over the weekend
- Bear Stearns, bought for a cheap song over a weekend
- IndyMac, here today, gone tomorrow
- AIG, down and almost out, and perhaps on its way down again
- Freddie Mac and Fannie Mae, taken over by the federal government
Times will get better. But I digress.
You want a scapegoat. So do I. It's you. And it's greed. And it's stupid guys put in office who are dumber than dirt.
Like Chris Cox.
Put in office as the head of the Securities and Exchange Commission by President Bush in 2005, Cox, who's resume looks not much better than Michael "Heckuva Job" Brown (former -- and disgraced -- head of FEMA during Hurricane Katrina, who's greatest claim to fame pre Katrina was as a horse judge, whatever that means):
From 1977 to 1986, Cox was first an associate and then partner with the international law firm of Latham & Watkins. At the time of his retirement in 1986 he was the Partner in Charge of the Corporate Department in the Orange County office, and served as a member of the firm's national management.In short, Cox was a lawyer who didn't have any experience with the stock market, not even a small exchange.
In 1984, Cox co-founded Context Corporation, which produced daily English reproductions of the leading state-controlled newspaper in the Soviet Union, Pravda. The publication was used chiefly by U.S. universities and U.S. government agencies, and was eventually distributed to customers in 26 countries around the world. The company had no connection to the Soviet government.
In 1982–83, Cox took a leave of absence from Latham & Watkins to teach federal income tax at Harvard Business School.
Cox sought to make the stock market "freer."
So he stopped enforcing the rules and relaxed the systems put in place to protect the market from too much momentum.
It's the momentum that kills, not the downward pressure on prices. Let's go back to AIG. Had they enough time to sell off a few pieces of their business (remember, they had $1 trillion in assets), they could have met their short-term obligations and the government would not have had to come in to rescue them with a bridge loan.
You know who pays for government bailouts? You and me.
Specifically, the rules have been in place for a long time prohibiting naked short selling (according to Wiki):
Naked short selling, or naked shorting, is the practice of selling a stock short without first borrowing the shares or ensuring that the shares can be borrowed as is done in a conventional short sale. When the seller does not then obtain the requisite shares, the result is known as a "fail to deliver."
...Naked shorting is widespread and ... the SEC regulations are poorly enforced, although the SEC has denied these claims.
The "short sellers" have obliterated this market. They are to blame. Now, I'm not saying that they don't play a vital role in making the markets work; however, what I am saying is that left to their own devices, people with bad intentions, or not so good intentions, can effect bad outcomes.
They're jackals killing a wounded lion. I suppose for all the "free marketeers" that the stock market is like the jungle. But for most of us, whose retirements count on the stock market (after all, it's been the government whoring out the 401k and IRAs), it's not a jungle. Sure, it has its pitfalls, but there are rules to play by.
And nobody's playing by them. Or, worse yet, the rules were changed and we didn't even know about it.
So, in short, President Bush appointed another friend with zero experience and intelligence in a high position of power and we got hosed because of it. "Brownie, meet Mr. Cox."
I'm not saying the market would be fine and dandy, but it surely would not have fallen so far so fast.
Of course, now that John McCain has announced he'd fire Mr. Cox, the media has jumped on the bandwagon. Here are some stories from around the 'net.
SEC's Cox Catches Blame for Financial Crisis
McCain says he would fire SEC head Christopher Cox
Fire Christopher Cox?
SEC Issues Temporary Ban on Short-Selling
Bush backs SEC's Cox after McCain says would fire him
Financial Crisis and Short-Selling
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