Without systemic change, nothing changed. The bailout was passed, and even despite protecting the wooden arrow manufacturing industry in the US, we’re still up the proverbial creek. The markets are unstable, irrational and the wild swings are more than markets can handle. The Wall Street Casino may as well have gone bust. It’s time to step in and stop the carnage as described by the NYT today:
The selling on Wall Street began at the opening bell on Monday and only intensified as the day went on. Shares moved sharply lower as the banking crisis tightened its grip on the global economy.
The Dow Jones industrial average fell below 10,000 for the first time since 2004 after losing more than 500 points in the first hour. The index has lost more than 1,100 points — or about 10 percent — in slightly more than a week.
Shortly after noon, the Dow was down 524 points or 5 percent….
The sharp slides came despite more reassurances from President Bush and a morning announcement from the Federal Reserve that it would significantly expand the amount of money it made available to major banks. The Fed will now lend up to $900 billion in credit, an enormous sum that officials hope will reassure banks that the government will provide them with adequate capital.
The moves were aimed at resolving a problem at the center of the current credit crisis: the reluctance of banks to lend. The healthy functioning of the world’s economy is dependent on the easy flow of short-term loans among banks, businesses and consumers, a stream that has been cut off as banks become more fearful of giving out cash.
President Bush made an unscheduled stop on Monday morning to speak about the crisis with owners of small businesses in San Antonio. Visiting for a half-hour with consumers and business people at Olmos Pharmacy, an old-fashioned soda shop and lunch counter, the president said, “It’s going to take a while to restore confidence in the financial system.”
“We don’t want to rush into this situation and have the program not be effective,” Mr. Bush said, calling the package “a big step” toward righting the economy.
Immediate moves that would stabilize the market:
- Freeze all stock transactions unless stock has been held for at least a year.
- Demand banks offer reductions in consumer credit card interest rate in exchange for any additional access to money at the Fed window. Consumers can choose the lower interest rate if they agree to a progressively lower credit limit and accelerated principle repayment schedules.
- Provide a new pool of mortgage funds through a government sponsored plan that allows consumers in adjustable rate mortgages to convert to fixed rate with a low transfer fee.
The goal is to take the volatility out of markets and to free up consumers to stimulate the economy without having to do direct rebates like the last “Stimulus package” that only provided a temporary relief (that was only $150 Billion).
There is also the question of the Wachovia deal. The idea that Citigroup has a shot at buying at $1 a share while Wells Fargo is offering $7 is twisted beyond Karl Marx’s wildest dreams. If we don’t show that shareholders must come first- they will abandon the market en mass, as they seem to be doing today.
Faith in the markets can only be restored when the markets are capable of acting like rational operations. The Wall Street Casino has now been exposed as a fraud, built like a Hollywood stage prop- it’s time to tear it down and build a real financial system again with real foundations rooted in business performance.