Tuesday, October 07, 2008

'Can this market be saved?' Part 1.

When I was a boy, the stock marketwhich is to say, specifically, the New York Stock Exchangewas seen as a hallowed symbol of American patriotism that ranked right up there with the flag, Dwight D. Eisenhower* and General Motors.** The memory of my Dad's reverent stories about Wall Street and its symbolism in American life is almost as clear in my mind as the memories of us going to the park together to play catch. As my father described it, the market charted in black and red, in vivid pluses and minuses, the lurching and unsteadybut finally inexorableprogress of the American Dream.

As I began writing this on Monday afternoon, the NYSE was in the process of tanking, below 10,000 for the first time in four years (in a trading session in which, at one point, it would be down as much as 800 points). Midday, the online edition of The Wall Street Journal put it like so:

The Dow is trading at levels that it first crossed during the technology runup in 1999. "It's the lost decade," said an employee at one Wall Street money manager. "It's 10 yearsgone."
It's interesting that someone should phrase it that waythat the first decade of the new millennium is "gone"—such that we're essentially back to where we were when the Internet was taking off.... Ah yes, the Internet, with its gaudy commodification of nonexistence, its ability to generate millions, billions, based on something that isn't even tangibly there except in the pixillated flicker of a computer screen. I think that says something. Think about the fortunes that have been made by the pioneers at Netscape, Google, Yahoo, etc., for "inventions" that can't be touched, smelled, sometimes even seen, inventions that don't really do anything except facilitate America's ongoing slide to becoming a total service economy, an economy that makes nothing but brokers everything, including (to an increasing degree) the nothingness itself. Yeah, we've come a long way since GM, baby. Straight down, some would argue.

But that's really sidebar to my reason for writing this post.

You don't want to read too much into anecdotal events, and I don't think you can put any faith at all in the reasons the so-called financial experts give us for the market's day-to-day fluctuations. ("The NYSE was sharply down Monday due to rumors that Warren Buffett has diverticulitis...") Regardless, I think it can be safely said that the stock market no longer stands for patriotism and the collective American striving for All Things Good. In recent decades the progress of the stock market has become increasingly divorced from the progress of the nation whose finances it supposedly epitomizes. Far too often, sadly, the market's specific parochial interests run counter to America's as a whole.

These are of course subjective judgments to some degree, because they have a lot to do with what you choose to label "progress."
Further, the market's operations typically reflect cognizance of trends that don't become known to the rest of America until some time later; ergo, on days when bad news about some underlying economic or sociopolitical condition finally explodes into headlines, the market may not drop as much as expected
or may even go upbecause the denizens of The Street have known about the underlying condition for a while and have been factoring it into their investing decisions all along.

Whatever the intricacies of market operation, this much is pretty clear by now: The stock market likes what's good for the stock market. It likes whatever maximizes shareholder value, not necessarily whatever's good for "Joooe Six-Pack," as one current member of a presidential ticket drawls it. To some extent this is endemic, just the nature of a system that's profit-based; a college buddy of mine with Marxist leanings liked to say that if the largest company in America sold caskets and millions of people suddenly began dying of some mystery illness, the NYSE would soar on the news. Now that's not technically true, in all likelihood, because any such ailment would surely have other consequences that might be highly disruptive for business
but his point is taken, and it makes the same case that a Harper's essayist made a few months back: The American economy is (brutally, dispassionately) quantitative, not qualitative.

And yet, as Bill Maher likes to say, the rot goes even deeper than that. Which is why a serious political candidate with a reputation as a reformersomeone who's going to root out greed and corruption in businesstends to be about as popular on The Street as a pro-lifer at a N.O.W. meeting***, because the business world, today, thrives on greed and corruption. Indeed, we have learned that there are major companies in which greed and corruption are/were the very raison d'etre.

Next time: Is capitalism broken? And what does SHAMland have to do with all this?

NOTE: The title is an allusion to a cheesy but venerable long-running series in Ladies' Home Journal, "Can this marriage be saved?"

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SMALL IRRELEVANT POINT RELATED TO THE BASEBALL PLAYOFFS AND MY GROWING ENNUI OVER THE RECENT RED SOX DOMINANCE THEREIN: Why in the world, if you are the manager of the Angels, do you try a squeeze bunt with an unreliable hitter against a pitcher who throws, like, 200 mph? And who is wild, besides? (Which means the pitch might not even be hittable.) A suicide-squeeze, no less? Mike, Mike, what were you thinking...??

* Note to college students: He was a war hero and one of our presidents.

** Note to college students: That used to be a major car company.
*** Oh, wait, I take that back: The president of the L.A. chapter of N.O.W. just came out for Sarah Palin.

18 comments:

Anonymous said...

"The president of the L.A. chapter of N.O.W. just came out for Sarah Palin."

As a private person, Steve, and not a N.O.W. representative.

Steve Salerno said...

Anon: Yes...but come on. If this isn't saying "principles don't matter, it's all about gender," I don't know what does.

Anonymous said...

"It's the lost decade," said an employee at one Wall Street money manager. "It's 10 years—gone."

Aptly shows the stupidity/tunnel vision of the average Wall Street money manager. Its not gone, its the past and if we had any nous we would learn our lesson from it and move on and build a better system from the ground up.

All I see at the moment is tinkering to keep the rotten colossus staggering on for a few more years, the crashes will come at shorter and shorter duration and be more and more spectacular.

This money thing is like an addiction. To build new, better habits you have leave the old ones quiescent while building new neural networks in the brain which in turn becomes the new conditioned behaviour.

Wall Street is a Dead Man Walking.
I'd put him out of his misery now rather than drag on making even more people miserable over time.

Anonymous said...

Perhaps it is all about gender for the LA N.O.W chapter prez,
She was roundly debunked, on behalf of the wider membership, further down the article.

Who said there aren't stupid feminists?

Anonymous said...

Whaddya know,

I had no idea baseball was that interesting. I thought it was just American rounders.

Anonymous said...

I'm betting what Mike was thinking was "We can't beat these guys straight up. We never could. We need a gimmick here."

See, he psyched himself out. He panicked and did something stupid. Proof of the mental game, no? ;-)

RevRon's Rants said...

Steve,
Asking if the market can be saved seems to me to be akin to asking if a mirror can be saved, upon seeing that our image in it has grown ugly. The market is as much a reflection of our priorities as it is an entity, and as our priorities have shifted from concern for the collective nation to the narcissistic obsession with self-benefit, so has the market.

The "Greatest Generation" accepted rationing, shortages, taxes, and sacrifice when the country went to war. Nowadays, the country plunged headlong into war, yet screamed whenever the necessity of sacrificed was mentioned, claiming that such an idea was fatalistic and even unpatriotic. We demand that money be spent on even the most trivial of things, yet puff up with near-messianic rage when reminded that we must pay the bill.

How else can the market react, other than to parrot our own demands? We decry the abuses and outlandish expenditures of government, yet are quick to overextend ourselves in a futile search for some ill-defined and impossible ego-fulfillment. Look how many McMansions have been built, sold, and ultimately foreclosed upon. Look at how the manufacturers of reliable, serviceable automobiles have clamored to produce the same automobiles, tacking on a few status symbols, then raising the sales price by 50% or more... and then struggled to keep up with the demand. And look at how many of us in subsequent generations to that greatest have emerged from college, degree in hand, and expected - no, demanded - to immediately acquire the same things our parents struggled for years to obtain.

Just as the consuming public has abandoned reality in formulating their expectations, the "market" has responded in like manner, abandoning the "reality" of producing goods in favor of the illusion of producing "hope." False hopes, that linger a while, only to be dashed when reality rears its head and "corrects" the market.

The old adage that one "poop in one hand and wish in the other" is proven true. We are just now seeing which hand fills up first, but we cling to our wishes long enough to complain about the smell.

Anonymous said...

Four out of five big Brit clearing banks (Main Street banks) semi-nationalised today. Mine, the Hong Kong&Shanghai the last independent--but for how long?
Iceland has gone bankrupt, can't get help from Europe so is looking to Russia, major shifts.
Gloom all round here, everyone predicting we are on the edge of a major bank run.
I think the time is past for shooting the Dead Man, he should have gone last week.
Life goes on regardless.

Stever Robbins said...

Anonymous @ 10:05: Interesting you say the market's an addiction. The recent book SWAY (that Steve hasn't yet debunked :-)) mentions in its final chapter that MRIs have shown that money activates the same regions of the brain that are activated when an addict thinks about their "fix."

At the end of the day, I believe the system is intrinsically broken. There was an article in Harpers a while back documenting the changing definition of "progress." Apparently, when the whole notion of GDP as a measure of health first came into vogue after WWII, the Govt. officials who adopted it were very, very clear that it was a partial measure and not necessarily the most important. It was just, well, measurable.

Over the decades, it's been elevated to the Supreme Measure of Progress.

It took me 16 years after graduating from Harvard Business School to make any serious progress in digging myself out from the mentality that money is all that matters, and that all progress is measured as money. Even though I'd intellectually realized that years before, the cultural programming (both U.S. and HBS) was so deep that it's taken a very long time for me to really "get" that money just isn't the be all and end all.

P.S. Steve, I share your outrage at our transition to a service economy. It's yet another tragedy of the commons: for any individual firm, it makes sense to outsource physical production to other countries. But when everyone does that, suddenly the country as a whole has lost its ability to produce real goods and services.

same ol' Eliz said...

Yes, I'd say it is important to note that the L.A. NOW chapter prez speaks as a private citizen and her private endorsement is at odds with the position of the major women's groups and organizations.

Having said that, there are women's organizations who do support McPalin, such as the (somewhat curiously called) Feminists for Life, of which Palin is a member.

Akhetnu said...

Ron-

Awesome insight; I'm linking to it on my livejournal for all to read (with adequate citation of course).

Anonymous said...

Stever,
I spent a long time watching gamblers and the stock market has evolved into a giant casino, same dynamics at work.
'Sway' is in my pile, as yet unread--so many books, so little time. I'll dig it out on your nod.

Elizabeth said...

In the last week's New Yorker, there is a selection of Norman Mailer's letters, written over a span of 60 years to various individuals.

This letter (below), from 1999, is rather relevant to the current discussion (forgive me for quoting the entire thing, but it would not be as good as an excerpt).

To Sal Cetrano

March 28, 1999

Dear Sal,

. . . While the Democrats, and Clinton first, disgust me with what I call their “boutique politics”—a little bit here, a little bit there, and served with loads of bullshit slathered over it—the Republicans are a psychotic monstrosity. On the one hand, they’re God, flag, and family—although few of them would know Jesus Christ if he were standing at the next urinal pissing along with them—and an astonishing number never served in the armed forces nor heard a bullet, and being politicians, they cheat like jackrabbits on their wives and families. But all right, what’s the use of being a politician if you can’t make a living at being a hypocrite? The point is: the Republican Party is schizophrenic: on the one hand, they are, as I say, for God, flag and family, but on the other, they are for the unbridled expansion of capitalism, and thereby leave out something that might still be important to you which is that Jesus, like Karl Marx, thought money leaches out all other values. Indeed, it does. If the whole country is going to pot, and it certainly is, I think you could graph the decline not only in morals, but in a sense of social éclat and social standards—I think you could plot the decline right next to the rise of the Dow Jones—the higher the Dow, the lower the standards. Money destroys all other values. I can even respect the right wing Republicans for holding to a few standards, as they do, but they never take on capitalism which, unbridled, is the worst scourge of human value that we have right now. There may have been a time when Communism was a worse scourge, but now we’re the leaders, and I suggest you consider living with the notion that the party of your choice is paralyzed in its moral centers. . . .

Cheers, old buddy,

Norman


Full text of the TNY piece:
http://tinyurl.com/48te7r

Anonymous said...

'MRIs have shown that money activates the same regions of the brain that are activated when an addict thinks about their "fix."'



I have this unprovable theory, Stever, than all we can ever see or create is not just a reflection or projection of the state of our individual brains, but, like the dreaded Law of Attraction, boo hiss, does actually become our individual realities.

Completely unprovable of course but science is coming up with more and more convergences.

That, of course, means nothing for science also is a product of our brains and also subject to being circumscribed by our physical/mental limitations.

No mention of quantum physics, note, I will not sink that low.
(I also know bupkis about Q.P.)

Anonymous said...

Wall Street is not dying, the banking system is. Those are two different beasts entirely. As long as we have public companies, we will have stocks. As long as we need credit, we will have banks and bonds. We do need to change the way we view credit though. We can no longer live on promises and gumdrops. We can no longer sell promises of future earnings or dreams of tomorrow via bond markets and the government. You ain’t got it you ain’t got it, to quote my favorite economist friend.

I am far more of an optimist than I give myself credit for. I do see the silver lining of the fall of the banking system. My annoying ex-investment banker colleagues don’t have the money or power to write bad self-help books. They can no longer stand in front of crowds and state, with a straight face” if you dream big dreams you can be rich like me. Einstein says so.”

Steve Salerno said...

Quite an interesting mix here, and--I just get the sense somehow--with several new voices among them. I could add fuel to the fire here, but it's a hellaciously busy week, I still have Part 2 to post, and I'm having too much damn fun seeing what everyone else says. Much food for thought.

Anonymous said...

'Money destroys all other values.'

Eliz,
I think old Norm was right on the money here.
Except that money in itself is neutral, just a symbol, token, medium of exchange.

It is what money becomes in our minds, the greatest good, the only value, that is problematic.

Some other guy said it loooong ago:
The *love* of money is the greatest evil, usually misquoted by eliminating the *love*

Elizabeth said...

Anon, I think you're right (which means I agree with you, LOL).

Now, for all, see this interesting exchange of ideas in response to the question, "Does the free market corrode moral character?"

http://tinyurl.com/4elpqb