Worthy Opinions » David Haggith

The fickleness of the stock market as a predictor of the economy versus just a responder to the economy played out clearly in the past week. On March 5th, CNN reported that the market had broken a five-day losing streak, bouncing off of twelve-year lows. “The markets opened higher and never looked back, following reports that China’s economy may be improving.” Umm. Well, they looked back the very next day and the day after that and the day after that. The price of tea in China was a silly reason for the market to rise in the first place, but we must remember it is overseen by a combination of villains and village idiots.

On January 30th, Germany’s news publication Spiegel reported, “The bailout packages aimed at shoring up financial markets in Europe are getting increasingly expensive. A creeping depreciation of currency is inevitable and state bankruptcies can no longer be ruled out.” Chancellor Angela Merkel stated, “There is a rumor going around that nations cannot go bankrupt. This rumor is not true.”

Some people keep talking stock, whether they’re right or wrong, and stay with their pollyanna beliefs. Others take stock of their own predictions, ignore what they want to believe, and look at reality square in the face. We’re now at a perfect time for taking stock of some recent predictions.

We’ve all heard the plan for saving the nation. Create a “Bad Bank.” Deposit all the bad loans in the nation into the bad bank, and flush them away. The bad bank will buy these loans with money that is minty fresh. This magic money will come from the next generation. Our legacy to them will be the world’s worst bank. The beauty of it is, they feel our pain, and we don’t. Their pain, our gain.

Sometimes you have to take off the gloves in order to knock the empty air out of someone. In his February 6th column, National Review Online’s Economics Editor, Larry Kudlow, pointed out that stocks were trading high that Friday, in spite of a massive plunge in jobs. As one of the gurus of the old economy, Larry explained this disconnect: “The stock market is telling us the economy’s future is a lot brighter than its past. The stock market looks ahead; the employment report looks behind.”

The word “depression,” which I was using a year ago, is the only thing about the economy that is gaining currency. This dismal word has now flopped off the lips of General Electric’s CEO and Great Britain’s Prime Minister like a dead fish. Another D-word, “denial,” still holds the teeth clenched when it comes to speaking the word “depression.” We only speak of that word, looking backward because no one likes to admit they’re currently depressed. It’s fine to talk about later when the wine is pouring.

Today begins the Chinese Year of the Ox. I wasn’t sure how much stock to put in the Chinese Year of the ___ stuff. (Right now I’m not buying stock in anything.) Then I had a brainstorm. I can easily see if there is anything to this Chinese New Year stuff by looking back at what 2008 was the year of.

I was still feeling kind of swishy in my belly this week as I read about various CEOs who brought down fat bonuses by bringing down their banks. And I was thinking, what is it that a top-of-the-line CEO does to bring down one of the world’s largest banks that makes him or her worth a seven-quadrillion-dollar bonus? I mean what particular niche of genius makes these barely-street-legal CEOs better at bringing down their banks than those stock CEOs who only get profit-sharing plans because their little institutions keep humming right along in perfect health?

When the present economic downfall was really getting under way last fall, Ken Lewis, the CEO of Bank of America, was lauded around the world for scooping up Merrill Lynch in a fire sale.

The Congressional Budget Office recently announced that the United States will be running its first trillion-dollar deficit this year — $1.2 Trillion if we count the pocket change. That’s about three times more than it’s been in any other year. Most Americans seem ready to agree with congress that this is necessary in order to save the economy from becoming totally frozen. After all, George Bush recently explained that he had to give up on free-market principles in order to save the free market because he had been warned by his experts (who never saw any of this coming) that we were facing an economic peril “greater than the Great Depression.”

In June of 2008, U.S. President George Bush taught us that “one of the things important about history is to remember the true history.” With that as our guide, and this being the final days of a truly historic presidency, I’d like to reflect on the wisdom of the previous year that got us where we are now.

“It’s too big to fail, it’s too big to fail,” has been the mantra of the U.S. government bailout program. If crises occur because these organizations are such behemoths that a single institution falling can cripple the economy under it, why have the top gurus in the Bush administration insisted upon making each institution far bigger still in order to save it?

During the winter of our discontent, which was January and February of 2008, the Bush administration fiddled as the U.S. was falling. While the Gurus of Government played happy music on their violins, singing that the economy was “fundamentally sound,” I was telling friends that we had entered a recession that had all the makings of another depression.

How do thousands of the world’s supposedly most brilliant investors fall for a con like Bernard Madoff and lose their shirts and slacks? The puzzle is not to explain how one person can be such a great con. There was nothing genius about his plan. His form of pyramid scheme, known as a Ponzi scheme, is one of the most common financial fiascoes in the world, known to all investors.