Journal mcgrew's Journal: All hope abandon, ye who enter here.- Dante Alighieri (1314) 5
Early in September the stock market broke. It quickly recovered however, indeed, on September 19th the averages as compiled by the New York Times reached an even higher level than that of September 3rd. Once more it slipped, farther and faster, until by October 4th the prices of a good many stocks had coasted to what seemed first-class bargain levels. Steel, for example, after having touched 261 3/4 a few weeks earlier, had dropped as low as 204; American Can, at the closing on October 4th, was nearly twenty Points below its high for the year; General Electric was over fifty points below -its high; Radio had gone down from 114 3/4 to 82 1/2.
A bad break, to be sure, but there had been other bad breaks, and the speculators who escaped unscathed proceeded to take advantage of the lessons they had learned in June and December of 1928 and March and May of 1929: when there was a break it was a good time to buy. In the face of all this tremendous liquidation, brokers' loans as compiled by the Federal Reserve Bank of New York mounted to a new high record on October 2nd, reaching $6,804,000,000 -- a sure sign that margin buyers were not deserting the market but coming into it in numbers at least undiminished. (part of the increase in the loan figure was probably due to the piling up of unsold securities in dealers, hands, as the spawning of investment trusts and the issue of new common stock by every manner of business concern continued unabated.) History, it seemed, was about to repeat itself, and those who picked up Anaconda at 109 3/4 or American Telephone at 281 would count themselves wise investors. And sure enough, prices once more began to climb. They had already turned upward before that Sunday in early October when Ramsay MacDonald sat on a log with Herbert Hoover at the Rapidan camp and talked over the prospects for naval limitation and peace.
Something was wrong, however. The decline began once more. The wiseacres of Wall Street, looking about for causes, fixed upon the collapse of the Hatry financial group in England (which had led to much forced telling among foreign investors and speculators), and upon the bold refusal of the Massachusetts Department of Public Utilities to allow the Edison Company of Boston to split up its stock. They pointed, too, to the fact that the steel industry was undoubtedly slipping, and to the accumulation of "undigested" securities. But there was little real alarm until the week of October 21st. The consensus of opinion, in the meantime, was merely that the equinoctial storm of September had not quite blown over. The market was readjusting itself into a "more secure technical position."
The Nikkei average plunged 9.4 percent on Wednesday, its biggest drop since the 1987 stock market crash, as growing fears of a global recession led investors to wipe $250 billion off the value of Tokyo shares.
Toyota Motor Corp (7203.T) tumbled more than 11 percent on growing expectations that the crisis would bite deeper into its profits, while the yen hit a six-month high against the dollar, adding to the pressure on exporter shares.
Panic over the fast-spreading financial crisis dragged down markets across Asia, with Japanese steelmakers such as Nippon Steel Corp (5401.T) sliding, as the Nikkei set another five-year closing low. It has lost 19 percent in the past five days.
"The deteriorating outlook for the economy and the deepening financial crisis are pushing fear to its limit," said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management.
"Investors want to dump shares as their willingness to take risks has shrunk, but no one wants to buy even if stocks are valued cheaply."
Fear, however, did not long delay its coming. As the price structure crumbled there was a sudden stampede to get out from under. By eleven o'clock traders on the floor of the Stock Exchange were in a wild scramble to "sell at the market." Long before the lagging ticker could tell what was happening, word had gone out by telephone and telegraph that the bottom was dropping out of things, and the selling orders redoubled in volume. The leading, stocks were going down two, three, and even five points between sales. Down, down, down.... Where were the bargain-hunters who were supposed to come to the rescue at times like this? Where were the investment trusts, which were expected to provide a cushion for the market by making new purchases at low prices? Where were the big operators who had declared that they were still bullish? ere were the powerful bankers who were supposed to be able at any moment to support prices? There seemed to be no support whatever. Down, down, down. The roar of voices which rose from the floor of the Exchange had become a roar of panic.
Only Yesterday
NEW YORK (AP) _ Wall Street headed for a higher opening Wednesday after the world's leading central banks cut interest rates in a coordinated effort to restore confidence in the market and stem the global financial crisis.
The emergency cut led by the Federal Reserve will at least temporarily provide relief for investors who have been battered this week. Before the half-percentage point cut was announced, stock futures were down sharply along with world markets in response to spiraling worries about the global financial system.
While Dow Jones industrial average futures rose, markets in Europe rallied from steep losses but only nudged into positive territory. That's a sign that investors realize that the stagnant credit markets and the economy remain extremely troubled and are likely to remain so for some time.
"With all of this occuring as a coordinated effort is showing that everybody out there is trying to fight this thing, and that should bring some confidence back to the market," said Scott Fullman, director of derivatives investment strategy for WJB Capital Group. "But, the big question now is can the credit market open for business."
The bankers separated. Mr. Lamont faced a gathering of reporters in the Morgan offices. His face was grave, but his words were soothing. His first sentence alone was one of the most remarkable understatements of all time. "There has been a little distress selling on the Stock Exchange," said he, "and we have held a meeting of the heads of several financial institutions to discuss the situation. We have found that there are no houses in difficulty and reports from brokers indicate that margins are being maintained satisfactorily." He went on to explain that what had happened was due to a "technical condition of the market" rather than to any fundamental cause.
As the news that the bankers were meeting circulated on the floor of the Exchange, prices began to steady. Soon a brisk rally set in. Steel jumped back to the level at which it had opened that morning. But the bankers bad more to offer the dying bull market than a Morgan partner's best bedside manner.
At about half-past one o'clock Richard Whitney, vice-president of the Exchange who usually acted as floor broker for the Morgan interests, went into the "steel crowd" and put in a bid of 205 -- the price of the last previous sale -- for 10,000 shares of Steel. He bought only 200 shares and left the remainder of the order with the specialist. Mr. Whitney then went to various other points on the floor, and offered the price of the last previous sale for 10,000 shares of each of fifteen or twenty other stocks, reporting what was sold to him at that price and leaving the remainder of the order with the specialist. In short the space of a few minutes Mr. Whitney offered to purchase something in the neighborhood of twenty or thirty million dollars' worth of stock. Purchases of this magnitude are not undertaken by Tom, Dick, and Harry; it was clear Mr. Whitney represented the bankers' pool.
The desperate remedy worked. The semblance of confidence returned. Prices held steady for a while; and though many of them slid off once more in the final hour, the net results for the day might well have been worse. Steel actually closed two points higher than on Wednesday, and the net losses of most of the other leading securities amounted to less than ten points apiece for the whole day's trading.
All the same, it had been a frightful day. At seven o'clock that night the tickers in a thousand brokers' offices were still, chattering; not till after 7:08 did they finally record the last sale made on the floor at three o'clock. The volume of trading had set a new record -- 12,894,650 shares. ("The time may come when we shall see a five-million-share day," the wise men of the Street had been saying twenty months before!) Incredible rumors had spread wildly during the early afternoon -- that eleven speculators had committed suicide, that the Buffalo and Chicago exchanges had been closed, that troops were guarding the New York Stock Exchange against an angry mob. The country had known the bitter taste of panic. And although the bankers' pool had prevented for the moment an utter collapse, there was no gainsaying the fact that the economic structure had cracked wide open.
-Only Yesterday
Investors were initially encouraged after central banks including the Federal Reserve cut interest rates in a coordinated effort aimed at restoring confidence in the market and help end the global financial crisis. But their enthusiasm faded as they realized a rate cut doesn't guarantee that businesses and consumers will have an easier time obtaining credit anytime soon, and that the economy is still in jeopardy because of a lack of lending.
"With all of this occurring as a coordinated effort is showing that everybody out there is trying to fight this thing, and that should bring some confidence back to the market," said Scott Fullman, director of derivatives investment strategy for WJB Capital Group. "But, the big question now is can the credit market open for business."
We are a stalwart and stouthearted people, and never more so than in hard times. People weep in the dark and arise in the morning and go to work. The waves crash on your nest egg and a chunk is swept away and you put your salami sandwich in the brown bag and get on the bus. In Philly, a woman earns $10.30 an hour to care for a man brought down by cystic fibrosis.
She bathes and dresses him in the morning, brings him meals, puts him to bed at night. It's hard work lifting him and she has suffered a painful hernia that, because she can't afford health insurance, she can't get fixed, but she still goes to work because he'd be helpless without her. There are a lot of people like her. I know because I'm related to some of them.
Low dishonesty and craven cynicism sometimes win the day but not inevitably. The attempt to link Barack Obama to an old radical in his neighborhood has desperation and deceit written all over it.
Meanwhile, stunning acts of heroism stand out, such as the fidelity of military lawyers assigned to defend detainees at Guantanamo Bay--uniformed officers faithful to their lawyerly duty to offer a vigorous defense even though it means exposing the injustice of military justice that is rigged for conviction and the mendacity of a commander in chief who commits war crimes.
In the storm over who is to blame for Wall Street's financial meltdown, guess who's getting the biggest bum rap? Poor folks.
In a desperate attempt to deflect blame from deregulation and other policy ideas they favor, conservatives are pointing their guns at a 1977 law that hardly anyone outside housing and banking circles cared about.
It's called the Community Reinvestment Act. It requires banks that receive federal insurance to lend within their geographic communities.
Before laws such as the CRA came along, banks "redlined" entire neighborhoods, denying prospective home buyers, most of them minorities, conventional home loans. Thanks to the CRA, thousands of renters have become homeowners. Neighborhoods have been saved. Tax revenue has increased. Urban life has improved.
But now the CRA has become a convenient scapegoat for commentators, Internet bloggers and YouTube propagandists. They want to deflect blame for the credit crash away from the more obvious culprits, such as excess deregulation, lax oversight and reckless capitalism.
For example, Neil Cavuto of Fox News opined last month that if banks hadn't been forced to make loans to "minorities and risky folks," the Wall Street disaster would not have happened.
Ann Coulter blamed "affirmative action lending policies" that loaded banks up with mortgages that eventually defaulted and brought the financial system to its knees.
George Will on ABC's "This Week" blamed "regulation, in effect, with legislation, which would criminalize as racism and discrimination if you didn't lend to unproductive borrowers," because "the market would not have put people into homes they could not afford."
And there's Rep. Michele Bachmann, a conservative Minnesota Republican, who caused a stir in Congress by quoting an Investor's Business Daily article that accused the CRA and President Bill Clinton of forcing banks to give out loans "on the basis of race and often little else."
Nice try, but the CRA's villainy has been wildly exaggerated.
Yahoo News asks >gasp< "Is history repeating itself?"
More coming...
Where/When will it end (Score:2)
No matters what is being done (rescue/bailout plans, nationalization of financial institutions, market take-overs, lowering interest rates, financial injections by central banks), it seems the only way for the markets is still down. Where I live (Netherlands) the stock market (Amsterdam Exchange) has plummeted and now is at 54% of its value a year ago. The recession hasn't even kicked in yet and it pretty likely there are more dead bodies hidden in a closet somewhere. Where will this end?
One thing I'm curio
Re: (Score:3, Insightful)
I fear not just a recesion, but a worldwide depression reminiscent of the 1930s. As you said, your stock market is only worth half what it was a year ago. The US Dow/Jones Industrial index is down at least 20% and its freefall shows no sign of abating. A 10% drop is a crash, what then would a 50% drop be?
Note that every other blockquote in that journal entry is from the book Only Yesterday (online version linked), and it was not about now, but about the 1920s, culminating in the 1929 stock market crash that
Nobody's got this right. (Score:3, Interesting)
The Dems say it's excessive deregulation. In a world where we have things like Sarbanes-Oxley and the accounting changes where every asset has to be valued on what you can get for it if you sell it today, it's hard to take that seriously. There is rampant fraud being perpetrated, and it's being ignored. When laws are ignored by a thoroughly corrupt bureaucracy, passing more will not help.
The Repugs say it's being forced to loan money to poor people, despite the fact it's apparent that community reinvestment has done way more good than harm. In my experience, it's a thinly veiled racism that says we don't want the brown skinned people owning property in our town.
Why is nobody talking about the inherent flaw in the fractional reserve system that creates a dollar plus of debt to be created for every dollar put into the economy? The system is rigged to fail. Coupled with shortsighted and greedy politicos on both sides of the aisle egging it on, and a general populace mostly ignorant on how the whole system of credit works just trying to stay ahead of the structural tax of savings that the reserve system creates, this disaster was pretty plain to see coming. The only doubt in my mind was based on the when.
The fix, it seems, is to give even more money and power to the architects and managers of failure. This is only going to exacerbate the problem. The time to be worried is when you start to feel prosperous again. The early stages of hyperinflation feels like prosperity. I believe we are standing on the precipice of runaway inflation of the like not seen in the western world since Weimar Germany.
Re: (Score:2)
The Repugs say it's being forced to loan money to poor people, despite the fact it's apparent that community reinvestment has done way more good than harm
The Clarance page editorial I quoted completely rebuts that claim. He says
Just to clarify (Score:2)
The Clarance page editorial I quoted completely rebuts that claim. He says
I am agreeing with you, not the assertion that seems to be the rank-and-file Repub statements I've heard. I'm a fan of the CRA.