Thanks, as always, for distilling it.

Jane, please tell me you know of someone seriously considering challenging BO for 2012.

Jane –

Great post.

Caught the first part of Dylan Ratigan’s show today and he was ripping his guests on the defects in this so-called reform bill.

Larry Summers is to economic policy as Rand Paul is to civil rights?

I’m not sure “the markets” care all that much – they have bigger things on their plate than to worry about than this bill (which has yet to pass conference where all the good stuff will be taken out).

I imagine the CNBCs of the world are billing this as the markets being spooked by Big Government and the evils of regulation anyway.

Meanwhile, the rightards are pulling on teabag strings directing the mindless marionettes to decry this massive Government takeover of our financial institutions.

In other words, fraud is a bad market structure. Who could’ve predicted?

WAIT a minute!?

You mean capitalism requires… accurate information? Accounting standards….?
Does anyone remember what those would look like…?

Hey Orville, don’t sell the bicycle shop.

Larry Summers belongs in prison. That he is Obama’s top economic adviser shows how corrupt and corporatist Obama really is. The financial “reform” legislation is just another example of this Congress and this President going through the motions without actually changing anything, at least for the better.

I suspect the market would have gone down if the Senate passed a very good bill — it would have meant major changes for US financial sector — even if the Eurozone were not imploding.

If the markets are saying anything relevant — always suspect — it’s that they have little confidence that European and US financial/economic advisers have a handle on what’s happening in Europe or trust the ability of the US to escape the effects.

However many Nobel winners Summers has in his family tree does not diminish the fact that Larry himself is an overrated hack.

The problem is not Larry Summers, it is his boss, the man who appointed him and keeps him.

I never miss his show these days.
I fear for his safety sometimes.
But Ratigan has morphed into one of my personal heros.

Oddly, he seems to share my strange, odd assumption that there’s this thing called ‘capitalism’ that requires transparency and accountability and good information flows.

I wonder if Larry Summers even knows what Ratigan is ripping on about. I doubt that Summers gets it.
Jane gets it, because she’s developed and marketed products.
Anyone around here who’s actually had to be in business, or lose money, or deal with patents knows more about capitalism than Summers seems to comprehend.

The stock market has been a fully formed bubble for 6-8 months. It is at a point where a sledgehammer like the European debt crisis might have no impact on it yet the slightest jar could send it over the edge. We are at a point though where even Ben’s ZIRP may be insufficient to keep the party going.

I don’t believe there’s much of anything connected to the workings of the stock market, including its volatile ups/downs, or the machinations of the banksters, that have much resemblance to any traditional understanding of efficient markets. What these disasters keep telling us, over and over, is that the belief these “markets” work to achieve anything remotely close to the public interest is delusional. They misallocate capital resoures, increase rather than spread risks, expose whole sectors to systemic failure, corrupt politics and policy and harm millions of people.

And yet our ruling class clings to the notion that somehow these “markets” must be protected and would be fine if only Ben, Tim and Larry are given another chance not to fall asleep. The recent interview of the Obama economic advisers in Financial Times(?) confirms they and Obama firmly believe this.

Rand Paul is merely the ludicrous extreme extension of this pervasive delusion.

I hope we survive them, but some days you have to wonder.

Maybe if we repeat it 1,000 times we’ll grasp the severity of the dilemma we face? Summers is NOT the problem, he’s ALWAYS been just who he is. He was the same person when Clinton hired him. The problem then WAS Clinton and now IS Obama! That the Democratic Party has sold its ideals for corporate payoffs is irrefutable. The question is, now what?

I think we’re saying somewhat the same thing.

There are no adults home, and nobody thinks that one will arrive soon. It’s not so much that the bill is making people nervous, it’s that there’s nothing in it that inspires confidence that the system’s inadequacies will be addressed.

Felix Salmon thinks that the volatility is due to the fact that market used to be stabilized by the assurance investors had that if it got in trouble, there would be bailouts. Since there seems to be diminishing appetite for bailouts, the markets are careening because of investor insecurity about the future.

Security can also come from confidence that there is a reliable regulatory system and appropriate checks on systemic risk. Which may result in the same thing (market dip) in the short term, but nobody thinks that this is what we’re seeing.

Listen to Mark Ames, the author of “The Exile: Sex, Drugs, and Libel in the New Russia,” give his account of what it was like to live in Russia when Larry Summers was Yeltsin’s Economic Hitman in Chief (listen to link below) and you’ll know that Larry Summers, acting as Obama’s Economic Hitman in Chief, is helping to spawn a new breed of American oligarchs that would make our turn-of-the-century robber barons green with envy. Larry Summers is helping our new American oligarchs strip us of our social safety net and shrink our working class down to a size where they can drown it in Barack Obama’s bathtub, just as he helped the Russian oligarchs do to the Russian people and their working class several decades ago.

http://antiwar.com/radio/2010/01/27/mark-ames-4/

They misallocate capital resoures, increase rather than spread risks, expose whole sectors to systemic failure, corrupt politics and policy and harm millions of people.

I agree with every point in your comment, but really wanted to highlight the problem with misallocating capital.

But then, IMVHO, the notion that ‘capital’ is **the** single magic ingredient that leads to economic growth is a delusion; there are other factors, all at least as important as ‘capital’.

However, I also think that Americans in general stupidly somehow believe that ‘capital’ is mystically ‘created’ on Wall Street, which is a terribly mistaken notion. And I also think that the Bushes, and their accolytes and associates, along with the Reaganite hangers-on, made money off money. Therefore, it was only natural for them to arrange all power structures around what many would call ‘usury’ and it’s related activities.

It weakens an economy and leads to powerlessness.
I find it deplorable. And also gutless.

If ‘capital’ was the key economic engine, then putting a big wad of bills on a table would ‘grow the economy’. Anyone dumb enough to believe that ‘capital’ lies at the root of economic growth should not be trusted with a pair of children’s scissors, and should certainly never be allowed to own a pet.
Good grief!

Read Jane. Read FDL. Read Yves Smith (NakedCapitalism).
Watch Ratigan.
Also, check out INET (Institute for New Economic Thinking).

There is the *potential* for a huge resurgence in economic thinking and activity; there has to be.
Also, pay attention to what Nick Clegg, new British Deputy PM is saying; he’s among the first of the newer generation that sees the economic problems with what we might call ‘crony capitalism’.

Any American politician who has not been keeping an eye on the huge changes in the last month of British politics is really missing some eye-opening shifts.

We’re in post-industrial economies, but we are still being given industrial, steam-engine rules better suited to railroad and mining interests of the 1880s. It’s not working, it can’t work.

You may as well try to put fins on a butterfly.

Terrific synopsis.

… conomist Nouriel Roubini told an audience on Tuesday at the London School of Economics.

Hey, this typo could spur a new term: Conomists. If anyone’s a Conomist, it’s Larry Summers.

- Tom

Agree. Different sides/perspectives, but same coin.

How is it that we can have this both ways?

When the markets are booming in the wake of massive de facto accounting fraud we appropriately say, “Using the markets to measure fiscal policy is a fool’s errand, because the market is just a speculative casino with opaque whims.”

When the markets are declining in the wake of massive de facto accounting fraud we then suggest, “See the market hates de facto fraud and corruption too!”

Actually, I tend to think that the dependencies around current ZIRP pumping to the TBTB makes any change in course a negative one for the market. So while the current reforms will do very little to change the course, the HFT partial penny bumps are critical to the current stock prices. May 6th showed what could happen when the HFT effects were temporarily removed for a few stocks from the NYSE and there was nearly no other major buyers looking for deals. Some of the comments in a post about Ratigan’s take on the crash at zerohedge are interesting because they suggest that the market is the HFT trades with estimates of more than 80 percent of daily trades.

My sense is that the ability to influence the market requires that the majority of trades be driven “technicals” which is to say followers of trends. One of the problems is that technical dominated market chases out fundamentals investors. Had there been a bunch of fundamental investors waiting for a dip then the fast pop down would be unlikely and even more importantly the buyers would have bought as the prices slid and it would have stabilized down on bargain purchases. Instead the HFT software popped price back up to where it first started to level off.

So assuming that any of this is more or less correct then the current down is either the fact that ZIRP is not manufacturing enough liquidity for the general market any longer or that the drop today was at least partially a message as the HFT micro transactions were withheld. If the current market were driven by fundamentals then AIG, FNM and FRE would have been delisted and turned in to mulch a long time ago. That market would have sought the changes that are lacking in the current Senate amalgamation.

Ya, this strikes me as exactly right. When the Germans banned naked shorts, which has been a felony here since 1934 for all the right reasons, the market tanked. I would expect a similar bath to be taken by retail investors (notice how the retail on-line shops shut down during big drops) if a good FinReg bill were passed. Sadly, such will not be the case.

If we can tie in the DC situation to the WS situation–and we probably can up to a point–then this is just another warning, just as the Flash Crash occurred the night before some big votes on amendments. I doubt that was terribly coincidental, even though there were other factors, like a plummeting Euro which would set off all manner of HFT algo alarms on the sell-side.

But still, there are other things afoot: Like a vastly overpriced market in dire need of a correction so the Big Money can basically steal stocks from Little Money at steeply discounted prices. Classic pump & dump.

Lastly, Jane is absolutely correct in pointing out how fraud has basically destroyed the viability of this “market.” It’s not so much a market anymore. Anyone not privy to inside info is basically a goose waiting to get cooked.

I hope everyone is out of equities at this point.

Well, I am certain many of you have already heard that media is playing this market swoon on Greece exempting everybody in Congress and on Wall Street. NPR was talking about that on the drive home today.. Greece-Euro-Greece-Euro-Germany

Read the comment above. Not saying that.

Here’s what Summers had to say in 1999 as Secretary of the Treasury after advocating for the repeal of the Glass-Steagall Act.”Today Congress voted to update the rules that have governed financial services since the Great Depression and replace them with a system for the 21st century,” Treasury Secretary Lawrence H. Summers said. ”This historic legislation will better enable American companies to compete in the new economy.”

Inside info from the Bill Bennett sports betting league:

Larry Summers loves the Pirates to win the World Series, Paraquay to be crowned World Cup champions, the Capitals to “Carry the Cup” and Josh Beckett is a lock to win the AL Cy Young Award.

There are no adults home, and nobody thinks that one will arrive soon. It’s not so much that the bill is making people nervous, it’s that there’s nothing in it that inspires confidence that the system’s inadequacies will be addressed.

Felix Salmon thinks that the volatility is due to the fact that market used to be stabilized by the assurance investors had that if it got in trouble, there would be bailouts. Since there seems to be diminishing appetite for bailouts, the markets are careening because of investor insecurity about the future.

Security can also come from confidence that there is a reliable regulatory system and appropriate checks on systemic risk. Which may result in the same thing (market dip) in the short term, but nobody thinks that this is what we’re seeing.

The problem here is that the markets shot upward to the point where there’s almost certainly a short-term equities bubble, and it did so on the back of huge bailouts, opaque transactions, and spurious government backstops. I know this, because I cynically played the shit out of it in both the banking and healthcare sectors.

Now, a really, really good reform bill would put an end to all three of those things, and the current reform bill puts an end to none of them. If the market can tell us anything useful about this, it should go down in the event of attempts to shutdown the largesse, because the largesse is the only thing keeping the market alive at all. They should react poorly to good reform, and well to faux-reform.

That’s why I don’t understand the following statement:

While there are certainly a lot of factors influencing the situation, the market’s volatility sends a clear message that the reform bill is inadequate to restoring confidence in their wake.

The way confidence comes into the situation is as Felix Salmon suggested, but to increase confidence in that way the bill should include additional bailouts and backstops. It’s not confidence in the functioning market, it’s confidence that the dysfunctional market will be allowed to continue.

If the markets go down, and they’re actually a useful indicator of anything here, then they should go down because the reform bill was a good one, that put an end to that dysfunction. We agree that this bill doesn’t do that, but the markets did go down. It’s that break in the correlation that keeps me from being able to understand how you arrived at this “clear signal” as you’ve described it.

The only reason I say anything at all, is because it seems like attributions to the markets as indicators of various things seem similar to situations where politicians take credit for things they had nothing to do with when they turn out good, and then can’t get away from being blamed for something they similarly had nothing to do with when they invariably go bad.

Are you saying that the DIJA is indicating the bill is a joke because it should have gone down way more if the bill had been a real reform bill?

I’m sure I’m missing something here.

LOL…I’m stealing that!

Speaking of capital

See here re fundamentals versus technicals, in particular Chart #4.

There are no adults home, and nobody thinks that one will arrive soon. It’s not so much that the bill is making people nervous, it’s that there’s nothing in it that inspires confidence that the system’s inadequacies will be addressed.

I think the average American is not a financial expert, and the details and debate just make their eyes water. I got a B.S. in finance from Wharton, and I know my eyes do. Fact is, President Obama already has the power to do all the regulating necessary to keep things smooth.

Felix Salmon thinks that the volatility is due to the fact that market used to be stabilized by the assurance investors had that if it got in trouble, there would be bailouts. Since there seems to be diminishing appetite for bailouts, the markets are careening because of investor insecurity about the future.

And yet after the big TARP bailout of September 2008, the market tanked, going down into the 6000′s. How? The bailout was announced, passed by Congress and signed by President Bush. Then over the next several months came the even bigger crisis, which now in hindsight looks like it was all talked into being by economic Chicken Littles.

I think the recent volatility is just part of a market correction. The market doesn’t just go straight up.

Security can also come from confidence that there is a reliable regulatory system and appropriate checks on systemic risk. Which may result in the same thing (market dip) in the short term, but nobody thinks that this is what we’re seeing.

Yes, but it’s not chaos, either. It really just looks like normal market functioning but only where the 24-7 news cycle and the internet blow recent events (those of the last week or two — that is, ANY last week or two) out of proportion to market history.

I want to clarify “systemic risk” versus everyday “market risk”.

To me, these are market risks:

Just a few months ago, people were saying that Dubai was the Beginning of the End. Remember? “Uh-oh! DUBAI! DUBAI! Sell, sell, everyone!” And whoever had been shorting risk made big money that week drumming that story along. But Dubai was a non-event. Market, not systemic. Then, some months before, there were the “stress tests”. Remember those? No one talks about them anymore. Turns out the banks are doing much, much better than even the so-called “optimistic” stress test scenario. How did that happen? Again, to me looks more like it was market risk. Some people were bank bulls; others were bears.

The Euro fell to $1.21. In 2002, it was 88 cents. Seven years later, a buck 60. So what was so great about the Euro before, and what is the calamity now, with it, well, not 88 cents. Economists say “purchasing power parity” is $1.13-$1.17. So it might be that Euro is just going back to where it needs to. It looks like a market functioning, not something systemically wrong with floating currencies.

I agree with you that there are so-called market imperfections that need to be addressed. But the idea that there has ever been an implied bailout backstop to investing, or that events of recent weeks or months are some Brave New World of investing terrain just don’t sound exactly like what seems to be going on.

I predicted this renewed decline in the comments immediately following the “flash crash flash recovery.” Just normal market behavior, as I understand it. Would have happened even absent this bill or the Germans’ new rule.

However, the market players do love a Wild West environment, and would always be expected to react negatively to any govt action that was interpretable as restricting that atmosphere. Thus, a weak bill like this one should spark a decline, but a stronger one would have sparked a bigger decline.

Bottom line, though, the bill and the Germans’ new rule was just the apparent trigger for a move that was already destined to happen.

The stock market drop here might have to do with what Merkel did 2 days ago in Germany. She had BaFin ban naked shorts. That left speculators scrambling to cover short positions.

Here’s the offical BaFin announcement with the terms.

But I agree, the better the reform bill, the more the market will stabilize. If Summers likes the reform bill, hold onto your wallets and/or purses because you are about to be robbed once again.

In other words, fraud is a bad market structure.

Not for those who are committing the fraud.

And we should note they (Washington & Wall Street) also the ones in charge of fixing the fraud.

Finally, it’s naive to believe the value of the DJIA (or anything else) is a fair or reasonable measure of anything in the real world. The pricing in “the market” is a manipulation, at this point inflated and controlled by the large central players using Fed money to re-inflate their balance sheets.

Feingold’s turned into a joke. He votes against this harmless charade but votes FOR that travesty of a HealthCare Bill? Shameful, just shameful!

I see the recent market volatility a little differently. Market makers are sending a message. Don’t f*** with our casino.

Angela Merkel banned naked short selling and European markets TANKED? Naked short selling is fraud, similar to counterfeiting. One would think that strong action against fraud would give investors a little confidence in the markets and they would stabilize and perhaps even rise. But noooo.

Brokerages and hedge funds make millions daily by using the naked short sale, and covering that short sale before the shares have to be delivered. The market makers are holding the investors hostage. Screw with our gravy train, and we will screw you over like you have never been screwed before.

If you vote for cloture right now and don’t add any more amendments, we will have solved the issues that led to crisis. Had this been law, as is, in 2007, we would not have had the crisis.

Can’t believe he isn’t in the House of Lords. I told my kids better bedtime stories than this. this is beyond f*** insulting and apparently all we are ever going to get out of this crew. yeah I know, newsflash.

ok, off to read what looks like a great thread – see if I can learn something

I think Salmon is wrong here.