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Monday, March 2, 2009

The Roaring Twenties, RIP

For those of us who follow the stock market, it sure feels like the end of the world. The Dow is now at less than half of what it was in October 2007. The stock market has a life of its own, often semi-independent of the economy, but this time it seems they're crashing in unison. No one younger than seventy has ever seen anything like this before. It feels as if a way of life is coming to an end.

A bad market can take down the stock prices of good companies. A bad enough economy will take down the companies themselves. Much of Wall Street was run by arrogant people with no thought for the systemic risk they were exposing the world to. Bear Stearns, and Lehman Brothers, and AIG all richly deserved to fail. But now even Toyota Motors, long an exemplar of a tightly run, very consumer-friendly company, has been reduced to asking the Japanese government for aid.

We may be headed for another depression. It's not a certainty, but it's definitely a possibility. (Our offspring may yet be Children of the Depression, if you remember that expression.)

Of course, the conventional wisdom says that when people give up hope, that means it's time to buy. Then again, this time is different: we've never had such a leftist President in office. But whenever people say "this time is different," the conventional wisdom says that it isn't. So both cliches indicate that it's time to buy. (Then again, one thing I learned on Wall Street is that there are two expression for every situation, each with opposite messages.) The only thing I know for sure is that I don't have the courage to buy anymore. Which, again, means it's probably time to get long.

From 1968 until 1982, the stock market didn't go up at all. If this this bear market lasts as long, and early indications are that this situation is worse, that means we'll be returning to early 2008 levels in 2022. (How old will you be then?)

I know absolutely no one whose livelihood hasn't been affected by this situation. Perhaps more ominous, I know almost no one who hasn't cut their spending because of it. Every day in the newspapers (at least those which are still in business) there are articles about people taking jobs which they previously would have considered beneath them. And those are the people lucky enough to find jobs. (Who's hiring right now?)

We may finally have found the solution to illegal immigration.

The country may never again be as prosperous as it was at the turn of the millenium, at least not in our lifetimes. Looking back, New York circa 2007 did have a last-days-of-the-Roman Empire feel to it, with all the corruption, greed, pampering, and excesses.

The Roaring Twenties are of course a much better analogy than Rome. The "last days of the Roman Empire" has a more dramatic sound to it (I inherited my sense of melodrama from my daughter), but the USA circa 2007 probably had more in common with the USA of 1927 than it did with the Rome of 400 AD. And Bush had more in common with the uninvolved and uninspiring Herbert Hoover than he did with Nero.)

[C'mon, I could have been even more melodramatic and said the last days of Pompeii. Although seismic activity evidently is picking up in the Yellowstone area, and if Yellowstone -- our largest active volcano -- blows, six states will pretty much disappear.]

During the Roaring Twenties, no one was talking about the Great Depression; they probably weren't even familiar with the term "depression." They were talking about the Flappers, or about how F. Scott and Zelda were partying their nights away before they checked into sanatoriums (what they used to call rehabs). Not all that dissimilar to the way we paid attention to rappers, or to how Britney and Lindsay and Paris were partying.

The point is, just before the changing of an era, people never know it's about to happen.

Another analogy might be Russia in 1917, just as the Bolsheviks took over.

Obama is certainly instituting some much needed reforms (cutting aid to large agribusiness, making hedge fund managers pay taxes at regular rates rather than at capital gains rates, regulating Wall Street, and cutting the influence of lobbyists). But he, like his spiritual cousin Hugo Chavez, seems to have an instinctive dislike of wealthy people. (Or wealthy "folks," as he would say -- my, isn't he folksy).

One senses that Obama would be happy to take ten dollars from rich people if he could give just one dollar to poor people. (Given the usual efficiency of big government, that's about the rate at which it will happen). In any case, one certainly doesn't get the impression that supporting the stock market is his first priority.

And the fact that Obama is trying to do it all at once (the redistribution, the banking bailout, the environmentalism, nationalized health care) makes it seem inevitable that we're going to be left with a gigantic mess.

In the meantime I'd like to say I'm poorer but wiser, or poor but happy. But the fact is, mostly I'm just poorer.


fitzgoldwin said...

At this point, I'm less upset at Democrats being Democrats than Republicans not being Republicans. I'll switch around later.

John Craig said...

Fitzgoldwin -- Thanks for your comment, you make a good point. Two of Bush's three biggest errors were (1) trying to satisfy the neocons by going into Iraq and (2) trying to be politically correct by saying he wanted to see 5.5 million more minority families in their own houses, and thereby essentially rewriting the lending standards. (His third biggest error was making the SEC toothless/allowing Wall Street to get way overlevered.) A true conservative would have done none of these things.

Anonymous said...

It can't all be that bad. Sure times are unsettling. A big part of it is a general state of panic media has created. When Bolsheviks took over Russia, it was an end of the era; people were poor and desperate...revolution was inevitable. Hope it won't get quite that bad here. In Obama's defense, he had inherited this mess and there is no quick remedy for it. Many of his efforts are destined to fail and there is nothing anyone can do about it. High risk takers are now facing the consequences. If you stop following the stock market for a little while and instead of the news watch some movies every now and then, things don't seem quite that bad. A bit of denial never hurt anyone.

John Craig said...

Anonymous -- Yes,I'm being a little overdramatic, but a depression is certainly not off the table yet. And yes, Obama did inherit this mess, and all Presidents get too much credit or blame for the economy, which seems to have a will of its own. But so far all he's done is use this crisis as an excuse to push through some Democratic pet projects....There's certainly nothing wrong with a little escapism, got any suggestions for good movies?

Anonymous said...

Not sure what kind of movies you might like...Watched Mall Cop and Juno recently-enjoyed both. Came across an old French movie Femme d'à côté, La-not bad; Fun with Dick and Jane-really funny; Love Actually-liked this one a lot.

John Craig said...

Anonymous -- Thank you, I'll keep those in mind.