Hawking Up Hairballs

Monday, March 23, 2009

Things Turning Around?

I get DSL from AT&T, so my home page is Yahoo! I know, I could change it, but that's where my web mail is, so I'd have to visit the damned page anyway. That being as it may, one of the headlines there says, "Wall Street rally reignited, stocks soar". The article under the headline, which comes from AP, says,

"Analysts who have seen the market's recent false starts are still hesitant to say Wall Street is indeed recovering from the collapse that began last fall. But the day's banking and housing news bolstered the growing belief that the economy is starting to heal, and that is what had investors buying."

So, what do I take from that? First is what it reveals about those who are calling the shots. They seem to think that this is nothing but an ordinary recession writ large. If that is the case, then we're simply suffering a crisis in confidence. Restore confidence and things will start to right themselves. Sounds good, if the analysis is correct. There are those, like Paul Krugman, who say it isn't. As he says in today's New York Times,

"If the reports are correct, Tim Geithner, the Treasury secretary, has persuaded President Obama to recycle Bush administration policy — specifically, the 'cash for trash' plan proposed, then abandoned, six months ago by then-Treasury Secretary Henry Paulson.

"This is more than disappointing. In fact, it fills me with a sense of despair."

Who is one to believe? Well, I don't know, but I'm inclined to disbelieve the AP article. In the first place, it is not the case that the stock market necessarily reflects the strength of the economy. For one thing, it's all too easy to manipulate, particularly by the big institutions. We don't know whether or not the Treasury and Geithner's pals on Wall Street are manipulating the stock market in order to put a positive spin on the "cash for trash" plan that the Obama administration is implementing. If I had to guess, I'd say that's a large part of it and then there's a coattails effect. If word gets out among Wall Street traders that the Treasury is pumping funds into the market, traders will buy in the hope of riding the upsurge and getting out with a tidy profit before the rally collapses.

The National Association of Realtors' reported an increase in existing home sales. That's the good housing news that the AP article referred to. There's a caveat here though. One needs more details about those sales. Here's an example. According to another AP article, a "truckload of investors" have descended upon Detroit, where the median sales price for homes has fallen to $41,000. These investors aren't people who plan on living in those homes. They plan on fixing them up and moving them back onto the market when it recovers. If it recovers. I don't call sales like these a positive or negative sign. They're pretty much neutral, yet we don't know what percentage of existing home sales are of this type, so how can one call it good news?

The banks need to be nationalized and cleaned up. Glass-Stegall needs to be reinstituted. Other forms of regulation need to be implemented and rigorously enforced. Unless that happens, I have to agree with Krugman. There's cause for nothing but despair.


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