Predicting the Weather Is Easier Than Predicting Financial Markets – and Muckrackers Are No Longer in Fashion.
Reflecting on the carnage we are seeing today in the economy, I marvel that hardly anyone saw it coming, unless it was that bearded philosopher, the late Karl Marx, who warned that financial crises are endemic to capitalism and that eventually “the bourgeoisie produces its own gravediggers.” A few doomsday predictors have been found — Fortune magazine put Oppenheimer security analyst Meredith Whitney on its cover, and the New York Times Magazine saluted economics professor Nouriel Roubini — but this list is a short one. It certainly doesn’t include Alan Greenspan, the long-time chairman of the Federal Reserve Board, an Ayn Rand acolyte. And where were Jim Cramer or Suze Orman when we needed them? And for that matter, where was someone in the SRI community who addressed the excesses in the financial markets? It appears that there are no short sellers in the SRI ranks.
James Grant, editor of Grant’s Interest Rate Observer, asked out loud in the July 19 Wall Street Journal why there has been such little public outrage “at Wall Street’s damaging recklessness,” as there had been in previous crises. I looked back myself at some of this outrage:
- In 1896, 36 year-old William Jennings Bryan delivered what has been called “the most effective speech in the history of American party politics” at the Democratic convention that nominated him for President. Railing against the gold standard and for the income tax, Bryan said: “There are two ideas of government. There are those who believe that, if you will only legislate to make the well-to-do prosperous, their prosperity will leak through on those below. The Democratic idea, however, has been that if you legislate to make the masses prosperous, their prosperity will find its way up through every class which rests upon them.” And to those who press for the gold standard, Bryan replied: “You shall not press down upon the brow of labor this crown of thorns, you shall not crucify mankind upon a cross of gold.”
- In 1915, prior to his Supreme Court appointment, Boston lawyer Louis Brandeis testified before Congress on the size of corporations and the role of trade unions. He said: “I think all of our human experience shows that no one with absolute power can be trusted to give it up, even in part. That has been the experience with political absolutism; it must prove the same with industrial absolutism. Industrial democracy will not come by gift. It has got to be won by those who desire it. And if the situation is such that a voluntary organization like a labor union is powerless to bring about democratization of a business, I think we have in this fact some proof that the employing organization is larger than is consistent with the public interest. I mean by larger, is more powerful, has a financial interest too great to be useful to the State; and the State must in some way come to the aid of the workingmen if democratization is to be secured.”
- In his first inaugural address, Franklin D. Roosevelt declared: “Only a foolish optimist can deny the dark realities of the moment…Plenty is at our doorstep, but a generous use of it languishes in the very sight of the supply. Primarily this is because rulers of the exchange of mankind’s goods have failed through their own stubbornness and their own incompetence, have admitted their failures, and have abdicated… The measure of the restoration lies in the extent to which we apply social values more noble than mere monetary gain.”
There is very little of that outrage around today. Dennis Kucinich, perhaps. Maybe Ralph Nader. But you are not going to hear it from ex-Goldman Sachs CEO Henry Paulson, now Secretary of the Treasury, or Robert Rubin, another ex-Goldman CEO, former Treasury Secretary and now senior counselor at Citigroup, a company heaped with hosannas not too long ago. And you’re probably not going to hear much of it from the two presidential candidates.
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To me, the epitome of the current financial crisis was the rioting that occurred in July at the Karachi Stock Exchange in Pakistan. Like stock markets all over the world, the Karachi exchange has taken a beating this year. It is down more than one-third since reaching a record high on April 21. Investors there became so agitated by this decline that they organized protest marches resulting in the breaking of the Exchange’s windows. Some demanded that the Exchange close its doors. The Financial Times interviewed a few protestors. “I am upset because I am constantly losing money,” said one. Another said: “For me, this is just murder for my economic future.”
These guys apparently never realized that a stock market sometimes goes down.