Friday, October 10, 2008

"NEVER SEEN PANIC LIKE THIS" IS THE CENTRAL PROBLEM

Investor Confidence Dashed as Bailout Fails to Quickly Loosen Credit By Renae Merle, Michael A. Fletcher and Neil Irwin Washington Post Staff Writers Friday, October 10, 2008; A01 Fear and foreboding took hold on Wall Street yesterday, as the stock market again plunged and investors became convinced that the nation is on the verge of a deep and prolonged recession. The rout continued in Japan, where stocks plummeted in early trading. The government took steps toward an extraordinary public investment in U.S. banks and General Motors stock fell to its lowest price since 1950 on fears it will not be able to weather the downturn. Share prices fell across every industry and for each of the 30 stocks in the Dow Jones industrial average, which was down 679 points, or 7.3 percent, to 8579.19.
But the plummeting stock market could not be blamed on any single piece of horrible news -- there were no additional bank failures or government bailouts or corporate bankruptcies. "I've never seen a panic like this," said David Wyss, chief economist at Standard & Poor's. "I've seen stock market drops, but not an overall panic."
--read entire article--
____________________________________________________________________ David Wyss (a chief economist) having never seen a panic like this is not a surprise, presuming he is somewhere under the age of 90. But a chief economist having no sense of the history of panics and no knowledge of the psychology that leads to financial panics, is really quite flummoxing. How do these people get to be chief economists at rating agencies? David's personal financial rating has just gone from AAA to CC (which is a drop of seven steps on the way to the basement). Markets rise on hope and fall on hope gone south. Along with 'The Buck Stops Here,' that phrase should probably be on every economist's desk--it should be pointing inward rather than outward, snuggled prominently between photos of wives, children and girlfriends. No one really understands the mentality of investors, except that it is a herd mentality and subject to stampede in both directions. Everyone (with the possible exception of David Wyss and Alan Greenspan) knew that housing was out of control. It's hard to sympathize with an industry that invented derivatives meant to hide what they themselves called 'liar-loans.' By the way David, bond-rating firms such as your own headily (and knowingly) rated these trash investments AAA. That brings a whole new definition to 'giving head.' The lexicon of investment banking, arbitrage, credit swaps and derivatives will never be the same again. Side effects: Indictments may follow. All this 'no one knew' and 'how could anyone forecast,' along with other convenient excuses are merely a dereliction of industry-wide fiduciary duty and obligation. Everyone knew. They simply were too giddy with profits get off a train of their own invention. It must be hugely embarrassing to you personally to publicly acknowledge such a dim wit behind your senior position. Are you still at S&P? Still advising? Not yet run out of the firm on a rail--tarred and feathered? I will help you in your prognostication, David. It's the least I can do. Listen closely, I have to whisper;
"There is over $500 trillion out there in the world, dependent on credit-swaps that are worthless. Worthless, David. That means not worth anything. It's as if your insurance company didn't actually exist when your house burned down--which is actually a pretty good analogy. Paulson has tossed $700 billion into the toilet--about 1/10th of 1 percent--to calm the markets. The tiger is raging with hunger and our Sec. Treas. gave it a teaspoon of red meat. Not a useful thing for a tiger raging with hunger. So timid, in fact, that the tiger will look elsewhere, possibly even in your direction, David. If I were you, I would retire quickly, lower the blinds, pull the covers over my head and not answer the phone. That last advice is personal rather than professional, but I include it at no extra charge because only god loves idiots."
Oh, and by the way David, if you think no one knew, how do you explain that Goldman Sachs (where Paulson was CEO) and J.P.Morgan Chase (to whom he sold off Bear Stearns) are the only investment banks left standing?