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Market Craters: Dow Falls 512 Points

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What we are seeing today is not as bad as the worst days of the crisis, but it ins’t much consolation for investors who had gotten back in the pool on the belief that the system had been patched up reasonably well and the economy was on the mend.

All the authorities did was patch up a predatory banking system with duct tape and bailing wire and hoped enough cheerleading would restore confidence. And after the banks got their bailout money, the mood seemed to be “we spent so much on them, we don’t have anything left for anyone else.” The alarming rise in government deficits, which was primarily the result of the crisis (falls in tax revenues and increases in automatic stabliizers like unemployment payments) and not discretionary spending, has led to a deadly combination of austerian policies (which is making debt to GDP ratios worse, see Ireland, Latvia, and Greece for proof), dysfunctional government responses, faltering recoveries, and deliberate shredding of social contracts. It’s like watching a house burn and then having people throw Molotov cocktails at it.

The pattern of serious financial crises is the market meltdown hits first, then the real economy plunge takes place later. Our officialdom had been patting itself on the back that “better” policy responses had stopped the sort of damage that the US suffered in the Great Depression and Japan experienced in its post bubble hangover. But the GDP revisions of last week included some stunning reductions to 2008 figures which called the comparatively cheery story we’ve been told into question. And the powers that be have refused to take the important step of writing bad debt down. Zombification was treated as the solution to our woes, when the result of past financial crises shows that taking the losses early which does result in a worse initial GDP hit, leads to much better outcomes. And here, the casualty has been not only growth but to a fair degree our political system, as the corporocrats have used the crisis to solidify their position.

The numbers as of this hour (I’m on a poor person delayed Bloomberg, but the amplitude ain’t gonna change much with something a tad fresher):

S&P down 3.63% (yowza), Dow down 3.31% (updated as of close, double yowza, Dow down 512, or 4.3%, S&P down 4.8%)

Oil down 5% to just under $87 a barrel

The yen has weakened markedly as a result of the Japanese intervention but is still in nosebleed territory at 79. The euro is at 1.41

The immediate trigger for the wipeout was yet another bad data release, this of consumer confidence, on top of general wobblies (yields on Italian and Spanish government debt have gone into “beyond redemption” terrain, and Italy is so large that any program would require measures well beyond what the Eurozone has in place). The narrative from Bloomberg:
A global rout in equities drove the Standard & Poor’s 500 Index to its worst nine-day slump since March 2009, while two-year Treasury yields plunged to a record low amid concern the economy is weakening. The yen pared losses, recovering from the biggest drop versus the dollar since 2008 that was triggered as Japan sold its own currency.

The S&P 500 fell 3.2 percent to 1,219.56 at 2:03 p.m. in New York, an 11 percent drop from its April 29 peak and weakest level in eight months. The MSCI All-Country World Index slid 3.5 percent as Brazil’s stocks slumped to a two-year low and Switzerland’s entered a bear market. Two-year yields declined as low as 0.26 percent…..

Concern the global economy may relapse into a recession has driven investors out of stocks and into the relative safety of Treasuries, the Swiss franc and yen and is spurring speculation the Federal Reserve will start another stimulus program. Japan’s moves to sell the yen, which this week neared a post-World War II record, and expand an asset-purchase fund follows efforts by the Swiss central bank to curb the franc’s gains. The European Central Bank resumed bond purchases and offered banks more cash to stem the spread of the debt crisis.

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151 comments

  1. jo6pac

    Everything is on schedule and now ws drives down 401 and pensions so we all are welcomed into the world of serfdom.

    I hope your site doing Ives because ZH and RM are up and down do to just one too many hits.

  2. craazyman

    I admit, I should have listened to youze guys. You’ve been dead right all along, right as rain — you Yves, and you Ed “SB” Harrison [SB for sector balances], and Marshall “the human black swan cuz he makes sense macro writer” Auerback. But I panicked and got stopped out of SKF at 63 just a few days ago, It would have put me in the absinthe bar if I’d just let it run. I mean really. What a cliche I am. Now If you guys can call the bottom you deserve an Honorary GED in Economic Literature. I Can’t believe AE Pritchard the other day was getting bullish cause of juicy M3 and M2. If he’s right, this could be the buying opportunity of 2011. It’s a shallow life trying to get rich quick, with a whole world of spiritual and intellectual awakening waiting to be discovered by an enterprising mind, but first things first. ha ha.

    1. hermanas

      Climax Blues Band:” Getting rich quik by a really clever trick is one way to be.
      Living in a hole like a mole on the dole is another way, but not for me.

    2. chris

      Yeh I was thinking the same thing but wondering why gas prices have been so stubbornly high when demand has been in the tank. Waiting for the spin to see what the reasons for such high gas prices are now that oil is dropping.

  3. rps

    Wowzers,DOW down 441. Bernanke and NYSE gang must be indulging in the two for one martini lunch thinking it’s just another Thursday. Menu special: October in August Halloween special of Black Thursday. I believe this a My Pet Goat moment as the waiter lends over to tell Bernanke the Market is in a critical mass nosedive.

  4. Diogenes

    It’s the Japan 1990s scenario. A deflationary environment.

    You can’t try to solve the problem with the same solutions that Japan used (duct tape) and expect a different outcome.

    1. Anonymous Jones

      You’ve inadvertently hit upon the solution!

      Buy stock in companies that make duct tape! Japan and the US are big places. Thatsalotta duct tape!

      I love this thread.

      I thought the market’s descent prior to the debt ceiling bill was all manufactured for shock doctrine effect.

      But this plunge is real?!?! I wish I knew that yesterday!

      But wait, I thought there were no plunges. The PPT assures us of this. This can’t actually be a plunge because they don’t exist. They’re like unicorns.

      But when you see an effing unicorn (even though they don’t exist), you surely know why they showed up when they did and for what purpose.

      Wait, wasn’t I talking about duct tape?

  5. Jim Haygood

    Several global stock indexes have entered bear markets. Italy is off 30% in six months. Brazil is off 27% from its late 2010 high. The S&P by contrast is off ‘only’ about 11.5%.

    Far more pathological is the message from the U.S. Treasury market. The 5-year T-note yields 1.13%, in the same range as its December 2008 safe-haven panic lows.

    http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=fvx&insttype=&freq=2&show=&time=10

    As usual, the Fedheads are yammering nonsense. Ignore these PhD fools. They are irrelevant now — just along for the ride in the back seat of the bus, making faces out the back window at the frightened drivers following them.

    ZIRP me up, Scotty — there’s no real yield on this bizarre planet!

    1. MyLessThanPrimeBeef

      The bull market was one of ‘extend and pretend,’ we thought.

      Looking back, the bull market was just ‘pretending to extend’ itself.

  6. rps

    DOWN 490.62. A five alarm fire….anyone? Hello 911 we have an emergency….(recording) “due to budgetary and personnel cuts we are unable to answer the phone. If on fire, please do Stop, Drop, and Roll, Have a Nice Day.

  7. Carol Boucher

    Didn’t we send sternly worded lectures to Japan over their policy foolishness? I could swear we had all the answers not so long ago. What, we exported all the answers and now we have none for ourselves?

  8. Jim Haygood

    Cosmic wink — the Dow finished off 512, the same point loss as on Oct. 19, 1987.

    Of course, the base index is five times higher now than in 1987, so today’s 4.3% drop is much less severe than 1987′s 22.5% one-day drop.

    Tomorrow’s another day, though. /:-()

  9. Dan Duncan

    “Austerian policies”….

    Total government expenditures in US est to be over $6 trillion–

    Wait…”$6 trillion” doesn’t do this grand number justice…

    Let me try again:

    Total government expenditures in US est to be over
    $6,000,000,000,000…and this is after the imposition of those draconian, ascetic “austerian policies”.

    OK…Riddle Time:

    How does a Baby Boomer define—

    Wait, “Baby doesn’t do that grand generation justice, either. Let me try again:

    How does a Baby B–ooo,ooo,ooo,ooo–mer define “austere”?

    $6,000,000,000,000.

    Freaking awesome.

    1. craazyman

      Dan that line of thinking don’t make no sense. Consider that generations of Americans had infinite Nature (i.e., the western frontier full of totally free property). And since Money = Property like Wave = Particle, they were already rich in that Shroedinger Cat way even if they died along the way from scarlet fever. Today there is no free property anywhere and no wild nature over the hill and every ounce of air is securitized and choked like a wine bottel. That why ever body go crazy like bright eyed wild horse dream. Contra naturam et humanum morte est.

        1. nonclassical

          Each to his own…to each his own..

          but it’s a factor of humanity, and not unlimited..

          movietime=Fellini’s Satyricon-Roma..simultaneously

  10. tz

    It is far worse this time.

    Before it did this without an extra 4+ Billion in “stimulus”, the Fed had only a little fecal matter on its balance sheet, and there were other options. We have taken damage to the financial condition of the government in the silly and misguided bailouts (bankster bonuses instead of mortgage mods). Now the limping treasury can do – what? Well, maybe we can have another debt ceiling vote in September…

    Now that we are out of ammo, they won’t even be able to fix bayonets.

    Of course bayonets are used to cut, and the cuts aren’t real.

  11. Brett

    Yves, you write in Econned how movements like today’s should be very rare according to efficient market hypothesis theory, which analyzes market movements based on a normal distribution. Could you write again how many times in a given year you can expect the Dow to move by over 4% if stocks really followed the normal distribution (which they don’t)?

    1. Jim Haygood

      etfreplay publishes a daily price change histogram for the past 12 months. There were NO 4 percent down days in the past year (not counting today).

      http://www.etfreplay.com/volatility_histogram.aspx

      According to a Barra newsletter, ‘the likelihood that the minimum negative daily return is -4% or lower is 0.0012% over a given day’ (assuming a normal distribution, which the writer rejects farther on in the article).

      http://www.barra.com/newsletter/nl165/OctoberMktNL165.asp

    2. Jim Haygood

      Just to illustrate how badly the Gaussian normal distribution fails during high volatility episodes, during the four-month period comprising Nov-Dec 2008 and Jan-Feb 2009, no less than seven (7) daily declines greater than 4 percent occurred in the S&P 500 index.

      They happened on Nov. 5th, 12th, 19th, 20th; Dec. 1st; Jan. 20th; and Feb. 10th.

      Daily data is available here, at Yahoo Finance:

      http://finance.yahoo.com/q/hp?s=^GSPC&a=09&b=31&c=2008&d=02&e=10&f=2009&g=d

      1. skippy

        Jim…all you need to do, too fix up Gaussian norms is…attach / insert a parasitical equation…cough…representing ***FRAUD***.

        The real fun is trying to assign a gross discount value to CAP /Price / Value in orders of magnitude across market sectors, dust to dust.

        Skippy…fraud is not capitalism, see every big bang since markets were recorded, regulation is an umpire, with out it its always ended the same, we repeat. Enjoy!

        http://www.youtube.com/watch?v=DCpxSzacbyc&feature=related

  12. Richard

    Yves,

    A little more optimism please. If you look at your other posts today, you see that we are finally converging on the solution of disclosure. Governments and monetary authority have thrown everything they have at the solvency problem. It was never going to be enough.

    Now we are headed for disclosure. With disclosure, we will get the write-downs that are so important for putting the economy on a firm foundation again.

    Richard

    1. monday1929

      Write-downs to reality puts 16 dollar per share SRS back to $5,000 dollars PER SHARE. There will be Troops in the streets before that happens.

    2. Johnny Clamboat

      I’d like to believe that but I don’t think you’ll get disclosure from the State’s current actors until after they’ve left office.

    3. nonclassical

      Richard,

      Transparency, oversight, accountability, or at least a Pecora moment is more relevant..

  13. Cedric Regula

    Black Swan !

    quack quack quack quack

    quack quack quack

    quack quack quack quack

    quack!

    1. aet

      So what was so “unforeseen” about this, so as to qualify it for the appellation “black swan”?
      You’re just being trendy.

          1. ambrit

            Mr Beard;
            To misquote Huxley; “After many a Summers glides the Swan.”
            This is one of the days when I’m content to not have very much money to gamble in that rigged game on Wall Street.

  14. rps

    Down 512.76. “To the Batcave.”

    Robin (Geithner): “If we close our eyes, we can’t see anything.”
    Batman (Bernanke): “A sound observation, Robin.”

      1. Dave of Maryland

        You mean, the sound of bankers jumping from tall floors with a single bound?

        No, I didn’t hear any of those, either.

  15. S.D. Jeffries

    With the news out of Europe, there isn’t even anywhere to escape to, and I don’t speak Mandarin.

    YVES: FYI – The correct spelling of the wire used to bale hay, and also to describe a temporary fix, is “baling” wire not “bailing” wire – although you could have meant that as a pretty good play on words considering the info in this article.

    1. aet

      One bails the water out of a leaky or sinking boat.

      Bail out the boat, not “bale” out the boat.

      Otherwise, it would be baleful spelling.

    2. No Know

      I think she either meant “bailing” as in bailouts. Either that or it was a Freudian slip.

    3. Yves Smith Post author

      I know the other way is right but I like the way “bailing wire” looks. I think I am so used to typos that I am beginning to adopt the Mark Twain school of spelling:.

      As I have said before, I never had any large respect for good spelling. That is my feeling yet. Before the spelling book came with its arbitrary forms, men unconsciously revealed shades of their characters, and also added enlightening shades of expression to what they wrote by their spelling, and so it is possible that the spelling book has been a doubtful benevolence to us.

  16. no gonna happen

    30-yr long bond @ 3.x%.

    perfect time to borrow some money and rebuild every leaking sewer and rusting bridge in America.

    sadly ain’t gonna happen.

      1. Jim Haygood

        There is no need for airplanes either — just leap off a tall building and flap your arms.

        Or spend your ticket into existence.

        1. F. Beard

          US Government debt is purely a gift to the rich and bankers; it will soon be on the way out as more people discover this.

          Better buy them Treasuries while you can.

          Oh btw, no less a libertarian than Murray N. Rothbard advocated that the US National Debt be repudiated so maybe you shouldn’t.

          1. MyLessThanPrimeBeef

            You need a strong military with a love for violence to pull that off.

            I don’t imagine little Caymen Islands can do that.

          2. F. Beard

            You need a strong military with a love for violence to pull that off.

            Check. However, I think the US National Debt should be paid off as it comes due (or faster) with new money. After all, new money was used to buy that debt. Turn about is fair play, isn’t it?

        2. F. Beard

          Or spend your ticket into existence. Jim Haygood

          “In MMT, money enters circulation through government spending; Taxation is employed to establish the fiat money as currency, giving it value by creating demand for it in the form of a private tax obligation that can only be met using the government’s currency.” from http://en.wikipedia.org/wiki/Chartalism

          1. MyLessThanPrimeBeef

            Which is better for money to enter circulation through gov’t spending –

            1> the government gives $1 billion to Halliburton to hack North Korean computer systems.

            2> the government gives each American citizen $10,000 free. Some creative souls, having nothing to do, will hack North Korean computers.

          2. MyLessThanPrimeBeef

            I imagine some MMT boys and MMT girls would like it to be $5 trillion…perhaps $10 trillion the way we are going.

          3. MyLessThanPrimeBeef

            You’re right…$100 trillion then.

            Most MMT boys believe money enters circulation through gov’t projects like Tennessee Valley Authority.

            That’s what the cement lobby wants you to believe.

            The government can have a large deficit while keeping spending at 1925 level, for example, by giving out $50K per American person per month.

            Sometimes you think it’s great to have atomic bombs. Then you find out your enemy also have them.

            I can’t wait for the small government crowd to start adopting MMT by gutting all public programs to create deficits by, first, cutting taxes and, then, giving away free money to everyone out right.

          4. F. Beard

            The government can have a large deficit while keeping spending at 1925 level, for example, by giving out $50K per American person per month. LessThanPrime

            The average monthly mortgage payment in the US is about $1,400/mo so $50,000/mo is way too high. Remember, we don’t want the total money supply (base money + credit) to change. Perhaps, including credit card debt, $1000/mo would be the max without increasing the money supply.

          5. MyLessThanPrimeBeef

            The question is probably better directed at those who claim deficits and debts are only politically constrained. Without the constraint, the government are free to give each person $1 million or $1 trillion a month.

            Luckily, for us, with respect to political constraint, voters will likely vote for $100 trillion per person per month.

            Remember, Deficit = Expense – Revenue

            and Surplus = Revenue – Expense.

            While one camp might see it as a free ticket to unlimited Expense (not including the free monthly paymnet), the other camp see it as a way to cut Revenue, to reduce taxes (initially. Ultimately, after cutting taxes to zero, they will start to think about giving free money away).

      2. Huh?

        The real economy is toast. Demand isn’t there, less demand is coming and there is no reason why (in these conditions) a company would invest to increase production. Who the hell is going to buy what is produced? Household debt, according to the Fed, doubled between 1975 and 2005. Another report I read recently said that household debt doubled between 2001 and 2007. It’s gone up tons in recent decades.

        Our trade policies are de-industrializing the country and we have three more coming. We are pulling lots of demand out of the economy (more than is state because of the multiplier). Wages haven’t grown in decades to begin with. How are people going to pay their debt back? Many don’t have jobs. If they have jobs, they are paying off their debt or saving in case they are next.

        What a mess. Thank you neoclassical economics.

        1. aet

          You are correct; productivity has gone up leaps & bounds, but wages? – pfffft! No gains in real terms whatsoever on 30 years. 30 years of the most spectacular increases in productivity due to automation than the world has ver witnessed before.

          What we are seeing are problems of success.

          All people need incomes. The ones who pocket the gains from the automation ought to be taxed so as to spread the wealth; don’t be afraid to use taxation as a re-distributive action.

          1. craazyman

            so true so true. my usual rant has to do with the subway card machines in New Yawk. They suck. One ate $20 last month. Just ate it. And my card. Then the cards stop working with $1.45 on them. That adds up.

            it’s a scam. the tokens were much better, and you had subway token both attendants with nice uniforms and the dignity of a secure job helping their fellow man and woman.

            where are they now? The token both attendents in their blue uniforms with MTA badges and flashlights? God knows. Probably on blunts and booze (not that I object to those) but every day all day? Or they’re fishing on the East River smoking menthol cigaretes, their bellies getting fat from drink and smoke, staring at the water. All because of the Metrocard and its broken machines that steal your money. and somebody’s broken mind that imagined the machines could every be as good as the token both attendants. they call it efficiency. I call it death.

        2. ScottS

          Debtors’ prisons will come back. To answer your next question, yes, you will have to pay for your time in debtors’ prison.

          Our elites don’t read Dickens.

          1. gs_runsthiscountry

            Interesting, and our history of debtors prisons were thus followed by rebellion…just saying.

          2. fledermaus

            Actually many state constitutions prohibit debtor’s prisons. But I wouldn’t put it past banks being able to talk some foolish states into amending.

        3. nonclassical

          Kevin Phillips-”American Dynasty”, on paper debt shuffled
          and shuffled, tranched, shuffled; economies based on paper
          debt shuffled have always failed….Britain, Holland, Spain..(U.S.)

          Phillips; U.S. financial sector totaled circa 20% of U.S. economy prior to Bushit-today, 40%…shuffling paper debt..

          leveraged against securitized something…

  17. David

    The Paulson/Geithner plan for bailing out the banks has done nothing for the public and only served to postpone problems. For a while, the total failuer of these misguided efforts was disguised by pumping up the market with cash.

    I think that what we need is a program that substantially reduces the U.S. trade deficit. This won’t happen under Obama.

      1. MyLessThanPrimeBeef

        Too much commerce is not a good thing, like too much water is also not a good thing. It will drown you.

        1. aet

          Commerce produces money income, and money is the greatest human invention ever devised for multiplying the ends of human endeavor.

          I like my markets to be busy, thank t you very much.

          1. aet

            And as to water, nothing correlates to good health so much as how great a flow of fresh clean water one can access.

        2. chris

          it is not money that is the greatest single invention it is compounding interest and the muliplication of that money through the banking system. But the banks have raped the system and the people, have been saved by the government and have brought the system to a grinding hault through fraud and abuses. there is no way we get recovery without the ability of people to get loans, generate interest payments and expand the money that is in circulation. We are seeing the perfect storm. Banks insolvent, government foolish, Shrinking gdp and low consumer confidence. Were is the shore, where is the life boat, there are none because the banks have no reason to do anything but sit back and wait for the economy to die. government gave them a free pass and now they banks have leveraged their power to pressure the government to bail them out again. specifically B of A trying at all costs to get settlement to remove their liability. they will work out some deal to forgive a few mortgages and the government will cave in and give the banks whatever they want and they will laugh at how stupid the america people are for electing officials that are so easily paid off.

          1. F. Beard

            it is not money that is the greatest single invention it is compounding interest and the muliplication of that money through the banking system. chris

            That is probably one of greatest evil inventions. One of the greatest good inventions is the common stock company. We could use common stock as private money and avoid compound interest, fractional reserves and even simple usury:

            1) Common stock as money requires no borrowing or lending. Assets and labor would simply be bought with new stock issue. Thus no PMs, usury, or fractional reserves are required. This is a huge benefit since PMs, usury (see Deuteronomy 23:19-20) and fractional reserves are all problematic.
            2) All price inflation is born by the owners of the corporation since every receiver of the new common stock money is by definition a part owner of the corporation. This is an important moral consideration.
            3) Without fractional reserves or even lending, then deflation is not a serious threat.
            4) Since all money holders are part owners of the corporation then they could vote on how much new money is issued and for what purposes. Thus price inflation is under the control of only those affected by it.
            5) The assets of a corporation are typically performing assets though PMs could easily be accommodated too.
            6) Common stock as money shares wealth at the same times as it consolidates it for purposes of economies of scale. Labor problems should be non-existent since the workers would be paid in common stock and thus be part owners. The number of those with a stake in capitalism would increase. The need and desire for socialism should decrease.

    1. Jim Haygood

      Speaking of bank bailouts — forgive the source, but this is horrifying if true:

      Sources tell me Italy has to restructure bonds. Deposit run on Italian banks. EU will have to mount Tarp rescue. Big stress on interbank loans.

      http://twitter.com/#!/larry_kudlow/status/99211544814026752

      I could imagine the Italian bourse opening for 10 minutes tomorrow, slamming the circuit breakers, and closing down for a white-knuckle weekend.

        1. Jim Haygood

          Kudlow is a bonehead, but the severe selloff in Italian bank shares is consistent with rumors of a run:

          Aug 4 (Reuters) – Italian bank shares have tumbled to valuations matching the lows seen at the depth of the 2008/09 financial crisis as worries mount that Italy will be sucked deeper into the euro zone crisis.

          A near 30 pct percent fall by Unicredit and Intesa Sanpaolo since July 1 has left Italian banks trading at just 0.32 times their book value, according to Thomson Reuters data.

          That’s the same as in March 2009, the low point for bank shares in the wake of the collapse of U.S. investment bank Lehman Brothers.

          http://www.reuters.com/article/2011/08/04/banks-italy-valuations-idUSL6E7J428V20110804

          These banks are now wholly dependent on ECB discounting and emergency loans. Cautious depositors may prefer to hold cash instead of deposits. That’s the same deleveraging disease which struck the US during 1929-1932. And it’s mighty hard to reverse merely with jaw-jaw.

          1. Francois T

            “Italian banks trading at just 0.32 times their book value”

            Given that they all use mark-to-bullshit valuation accounting, one must assume that this ratio is still too high.

    2. Just Tired

      “The Paulson/Geithner plan for bailing out the banks has done nothing for the public”

      The idea of public service has become quite quaint. The Paulson/Geithner plan worked out very well for their crowd. What else matters?

    1. Francois T

      No need for a concerted attack; mutual funds hold cash at a record low.

      Only thing needed is a bit of sudden redemptions.

  18. Sam

    I thought the Debt Ceiling cackling was supposed to fix this. Anyway, the more bankers and traders destitute and on food stamps, the better. Ringfence New York, New Jersey, and Connectcut. Put bankers and traders on foodstamps. Focus on Main St. Need pensions managed? Hire new MBAs with no previous connection to Wall St. Spreadsheets and brains can do the modeling.

  19. jacke

    Right on, Yves. We are reaping, once again, the effects of a “too big to fail” and “too big to regulate” banking system, where predatory lending is king.

    The banks failed to recognize that the destruction of the real estate, construction and small business sectors through the wholesale calling of good loans throughout those sectors is a vital part of the entire economic circle.

    The banks stopped the engine that created jobs, that created products in demand at every stage of construction process through consumer process, and caused this collapse in 2007-2008. Federal control by those banks gave them $700 billion in TARP to solve their excesses, which they failed to use as intended.

    Their inability to assess the consequences, both intended and unintended, of their corrupt actions led to today’s collapse in the stock market. I don’t see any indication yet that there is any understanding of cause and effect, much less a plan to get out of the mess.

  20. Hugh

    Thank goodness the Congress did the debt ceiling bill before going on vacation, or something really bad might have happened. /s

    A few observations:

    The rich own 90% of the stock and bond markets.
    The markets are rigged.

    This leads me to wonder about the timing of today’s drop. The kleptocrats got what they wanted out of the debt ceiling bill so it was OK to let the hired help, what we call the Congress, off for a few days. Their target moves now to the Fed and Bernanke. Could this be a market tantrum to push for QE3?

    The risk here is that the world economy is very shakey. We are going to have another crash and it will most likely start in this way, a precipitating event, real or a speculative miscalculation, and then a cascade. We have had a lot of shocks in the last year. The odds are one of them will send us over the edge.

    I predicted a crash for this year more than 2 1/2 years ago back in early 2009. The potential for a crash is high between now and the end of October. It sounds trite but we probably won’t know which event tips the house of cards over until we see it. That is any of the events we have been seeing here, in Europe or China could do it, but which one will do it?

    1. rps

      “I predicted a crash for this year more than 2 1/2 years ago back in early 2009.”
      Not that I want to rain on your parade but, take a number and get in the back of the line

      1. Hugh

        My views on a 2011 crash have been regularly expressed here and elsewhere since early 2009. I do not remember many people willing to hazard a prediction or give a rationale for it so early on or for this year. Somehow I missed your work in this area and that is curious because with such vanishingly small numbers if I had seen it I would have remembered it.

        I think there are many misconceptions about forecasting. For me, it is less about being right, although there is a certain satisfaction I get from that, than it is about establishing a record. The 2007 housing bust and the 2008 meltdown demonstrated the importance of such a record to use against those seeking to dodge responsibility by using the “no one could have predicted” defense.

        The odds of a crash, given the political and economic dynamics of the kleptocracy we suffer from, are 100%. A prediction is less sure the further out it is. But we do have some data that make this kind of prediction feasible. We have the underlying trend and a knowledge of the yearly business cycle and how policy works out within our 2 and 4 year election cycles. Taking these together there are periods of lower and higher probability for a crash. A crash could occur in a low probability period or be precipitated by an unforeseeable event like the earthquake and tsunami in Japan. But it is most likely to occur in a period of high probability (fairly tautological that).

        In this regard, 2011 was always the mostly likely year. The fundamentals would have continued to deteriorate. Stimulative programs and their effects would be largely gone, and the politics would favor economic damaging programs either through political stalemate or adoption of destructive options.

        All of this was pretty clear from early 2009 onwards. There are of course many other facets but just looking at the US economy these are the main ones. If you saw these things, then I congratulate you. If you did not, I would encourage you and really anyone else to look at how economic trends and political cycles intersect and interact.

        1. aet

          Yes, this was NOT a “black swan” event.

          Utterly predictable, and profitable, too, if one was up for it.

          1. aet

            But still, this “stock market crash” for me is a “nominal”, not a “real” event, like the destruction of physical values wrought by active warfare.

            We’re just knocking some a zeros off the values.
            Not destroying the underlying assets with bombs and bullets.

    2. lambert strether

      As Hugh points out, the market is rigged, so why panic? I mean, more than the usual generalized sense of angst.

      I still think that as long as the elites don’t panic and turn on each other, the game of pass the parcel will continue until after Obama’s re-elected, which the elites want, because he’s done spectacularly well for them. And if Keynsian stimulus in the form of war with Iran is needed, well, what’s not to like?

      1. psychohistorian

        Lambert, I am offend by the end of your comment.

        Some of us moralists continue to be offended at people being killed in our name but you seem to think it is a good idea. Please focus your hatred on those deserving of it.

          1. ambrit

            Maam;
            Yes indeed, Mr Strether is a past master of sarcasm. Quite enjoyable whenever one is not the target of such “doubtful phraseology.”
            My following comment is not a ‘taking exception,’ but an amplification of Mr Strethers above aside.

      2. ambrit

        Mr Strether;
        Ah, yes, the Iran card. The problem with that one is that Iran has a military establishment quite capable of devastating the “Holy Land.” Even Israeli Hawks counsel against the Iran adventure. As long as Iran pisses off its’ neigbors, like Saudi and Turkey, and Ex-Russian Stans, not to mention the Afghans, that problem can be managed. Attacking them would not only create an Islamic “United Front,” but we would probably lose. (Not to mention the effect on the Oil market.) If we really do hear some sabre rattling anet Iran, we will then know without doubt that our ‘elites’ have completely lost touch with reality. One thing about reality; you can ignore it, but you can’t create it. Nuff said.

      3. psychohistorian

        My apologies to lambert strether if it was indeed snark.

        I continue to take the killing in America’s name very seriously and as the primary reason we are hated around the world.

  21. scraping_by

    Ever since April 2009 when this mysterious levitation began, the question was ‘Whose money is this?’

    When the Fed was mentioned, after huffing about the PPT being a paranoid fantasy, the Fed stepped on stage and made it official and way bigger. But the QEs are ended, and the demand is the real demand (two notches above Fuck All) so the prices begin to fall.

    Since there was a little lag, and Americans can’t see cause and effect on a timeline any larger than a TV remote, there will be some MSNBC noise. But it’s reverting to the mean mean. Mean both in the Brit English and American English sense. Happy tobogganing.

  22. paper mac

    “What we are seeing today is not as bad as the worst days of the crisis, but it ins’t much consolation for investors who had gotten back in the pool on the belief that the system had been patched up reasonably well and the economy was on the mend.”

    In other news, luthiers report soaring orders for tiny violins

  23. abelenkpe

    “…investors who had gotten back in the pool on the belief that the system had been patched up reasonably well and the economy was on the mend.”

    Did anyone actually believe things had been fixed up?

    Most that I know took their money out of the market long ago.

  24. Ron

    If the market had risen 500 points today then all is well, seems we only can handle up days on the market which reflects the MSM continued use of the equity markets to generate happy talk. The reality is that professional equity traders need access to low cost liquidity (cheap money)to create these endless up days, so today reflects a knot in the money trail which I am sure the financial deciders are working hard to unravel then its back to the same games.

  25. Anjon

    But i thought we had “turned the corner”!
    I thought “prosperity is around the corner”!

    I thought Helicopter Ben “Milton Friedman” had cured everything (“all you need is liquidity and you solve crashes!”). And how about those great debt deals between Barack Hoover Obama and Speaker John “Andrew Mellon” Boner had solved all those massive deficit/inflationary pressures that were about to hit “at any second”

  26. Crazy Horse

    So, how many Wall Street execs leaped from the 40th floor today? None, you say? Perhaps they need a little help. After all why should they leap when the villa in the Virgin Islands is paid for free and clear from last years bonus and stocked with several years supply of Dom Perrion (sp).

    Buried under the news about retail investors in the Dow getting whacked over the head with margin calls from their broker was this little factoid. The biggest single loser was a company called Dendron @ -65%. They produce a drug that is highly successful in combating prostate cancer. Since it is so effective they concluded that they could extort $95,000 for two treatments from men with potentially terminal cancer. Problem is, doctors won’t proscribe it because they don’t believe the pee party gubmint will honor their invoices and they will be stuck trying to extract the cost from the estates of the men who died anyway of heart attacks and old age. Once word got out that they couldn’t sell Provenge for a kings ransom, “investors” ran away leaving the company to drop dead on the bloody floor of the Nasdaq.

    Wonderful health care system we have. Is it any wonder that we rank #37 in the world, immediately below that well known Narco-state, Columbia?

  27. Conscience of a Conservative

    From watching the network news it’s clear everyone is using this plunge to push their agenda..That said this is how I read it…

    Today’s decline is nothing more than a reaction to Europe(Italy & Spain). The RISK OFF trade is alive and well.

  28. Because

    They key will be when one of the bloodlines will rebel and stop with the confiscations of the middle classes wealth even if hurting a fellow brother. Much like they tried to hold a coup against FDR for his SS program and 2nd New Deal, we need somebody to spit on the bloodlines. JFK was the last President(they didn’t even give RFK a shot lol) to try. Eisenhower pushed JFK though to rebel against the families, little surprise he died afterwords as well, probably with guilt at JFK’s death.

    America needs to rebuild. End the control of the Dupont’s and the Li’s stranglehold. Kennedy’s are dead.

    1. skippy

      Family’s are a socialist construct right?

      Skippy…Neo]Liberal Free market capitalism hates family’s[???], so confused, head in bucket again.

    2. ambrit

      Dear Psychoanalystus;
      The last bull headed socialists I can think of were the Minoans. And it was those bloody Greeks who caused their ruin! That old seer was right to warn: “Beware of Greeks bearing bonds!”

  29. rps

    ROFLMAO on WSJ:Bank of New York Mellon Corp. on Thursday took the extraordinary step of telling large clients it will charge them to hold cash……”If it’s true, I think it’s atrocious,” Gary Cos, chief financial officer of Champions Life Insurance Co. in Richardson, Texas, told CFO Journal, a news service of The Wall Street Journal. Champions, which has $150 million in assets, has bank accounts with three local Texas firms and J.P. Morgan Chase.

    Such a move, he said, “would encourage us to find another bank (haha someone hand the guy a hanky)…..
    Bank of New York said that customers that have deposited more than $50 million into their accounts since the end of July will face an annual fee of at least 0.13% of the excess deposits.”
    http://online.wsj.com/article/SB10001424053111903366504576488123965468018.html

    So are the banks telling the gabillionaires “we don’t need your stinkin money?”

    1. gs_runsthiscountry

      Maybe that is a huge red flag the top banks don’t expect much from the Bernake’ in the way of further policy moves (monetization …aka QE-3,4, or 5…)

      Seems to me they are telling their clients, “put your money to work – anywhere – put it to work in the system.” Further, what bank will they to run to? Will we watch the other large banks follow suit, and nudge their big clients next with the same terms?

      1. aet

        While you would rather people put their money under a matte ress, or buried in cans in the yard, with your gold, right?

    2. psychohistorian

      Thanks for the info and I share your reaction.

      This is the top one-tenth of a percent telling the rest of the top one percent that they need to keep the game going so they can steal from the idiots investing in market trinkets at the lower income levels.

      Shake head and LOL!!!!

    3. Foppe

      A few paragraphs in:

      Huge deposit flows pose another problem for banks: They force banks to hold increasing amounts of capital, which they are loath to do because doing so depresses profits—which are already under pressure with a slow economy and rising regulatory demands.

        1. F. Beard

          “Animal Spirits” can do little without the “Punch Bowl”, the government backed usury and counterfeiting cartel.

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