Wednesday, February 18, 2009

What Is the Stock Market Telling Us?

The stock market, as measured by the Dow Jones average, has dropped about 3500 points since Obama pulled ahead in the polls last October, and today, it dropped another 300 points as Obama signed his pork-stimulus bill. Investors, in dealing with their own money, are giving a clear message: this is about the most stupid thing we could be doing at this time, and the history of the period from 1932 to 1942 proves it.

It was the collapse of the monumental bubble in the housing market combined with an accompanying period when gasoline was selling for $4.00 per gallon that turned a gathering recession into a financial disaster not before seen in the lifetimes of most of us. Until the credit situation stabilizes, and our banks and other financial institutions become healthy, we have little chance of getting out of this mess; and the federal government should be focused on this instead of borrowing huge sums to spend on pet projects. It’s hard to sell politically, but billions more are needed to normalize credit markets.

Liberal Democrats are having great fun anticipating distributing the pork and excoriating bankers, brokers and automotive executives (who are almost impossible to defend), but let’s not forget that they (the Democrats) are the ones who are mostly to blame for getting us in this mess in the first place. The old saying that good fences make for good neighbors was violated when lenders were both encouraged and forced to make mortgage loans that made no sense - and then greed took over and turned another example of unintended consequences into a world-wide disaster. The unbelievable greed and irresponsibility of firms like Bear Stearns, Lehman Bros. and AIG, who devised ways to take advantage of the situation, was exposed by the credit crash, but unfortunately for the taxpayers, we desperately need a functioning and robust credit system for our economy to function, and we have to grit our teeth, do what is necessary and pay for it.

If you have difficulty playing these videos, you can access the first one here and the second one here.


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