Is It Any Wonder The Market Continues To Sink?
Posted 02/20/2009 07:16 PM ET , Investors.com – As read on the Rusty Humphries Show – Author unknown.
Last Oct. 13, in trying to explain why the market had sold off 30% in six weeks, we
acknowledged that the freeze-up of the financial system was a big concern. But we cited
three other factors as well:
The imminent election of "the most anti-capitalist politician ever nominated by a major
party."
The possibility of "a filibuster-proof Congress led by politicians who are almost as liberal."
A "media establishment dedicated to the implementation of a liberal agenda, and the
smothering of dissent wherever it arises."
No wonder, we said then, that panic had set in.
Today, as the market continues to sell off and we plumb 12-year lows, we wish we had a
different explanation. But it still looks, as we said four months ago, "like the U.S., which
built the mightiest, most prosperous economy the world has ever known, is about to turn
its back on the free-enterprise system that made it all possible."
How else would you explain all that's happened in a few short weeks? How else would you
expect the stock market, where millions cast daily votes and which is still the best
indicator of what the future holds, to act when:
Newsweek, a prominent national newsweekly, blares from its cover "We Are All Socialists
Now," without a hint of recognition that socialism in its various forms has been repudiated
by history — as communism's collapse in the USSR, Eastern Europe and China attest.
Even so, a $787 billion "stimulus," along with a $700 billion bank bailout, $75 billion to
refinance bad mortgages, $50 billion for the automakers, and as much as $2 trillion in
loans from the Fed and the Treasury are hardly confidence-builders for our free-enterprise
system.
Talk of "nationalizing" U.S.' troubled major banks comes not just from tarnished
Democratic Sen. Chris Dodd, chairman of the Senate Finance Committee, but also from
Republicans like Sen. Lindsey Graham of South Carolina and former Fed chief Alan
Greenspan.
To be sure, bank shares have plunged along with home prices, and many have inadequate
capital. But is nationalization really the only solution for an industry whose main product
— loans to consumers and businesses — has expanded by over 5% annually so far this
year?
A stimulus bill laden with huge amounts of spending on pork and special interests is the
best our Congress can come up with to get the economy back on track. Economists
broadly agree that the legislation has little stimulative power, and in fact will be a drag on
economic growth for years to come.
The failure to include any meaningful tax cuts for either individuals or small businesses,
the true stimulators of job growth, while throwing hundreds of billions of dollars at
profligate state governments and programs — such as $4.2 billion for "neighborhood
stabilization activities" and $740 million to help viewers switch from analog to digital TV—
has investors shaking their heads.
A $75 billion bailout for 9 million Americans who face foreclosure, regardless of how they
got into financial trouble, is the government's answer to the housing crunch. Many
Americans who have scrupulously kept up with payments are steaming at the thought of
subsidizing those who've been profligate or irresponsible.
With recent data showing that as much as 55% of those who get foreclosure aid end up
defaulting anyway, a signal has been sent that America has gone from being "Land of the
Free" to "Bailout Nation."
Energy solutions ranging from the expansion of offshore drilling and the development of
Alaska's bountiful arctic oil reserves to developing shale oil in America's Big Sky country,
tar-sands crude in Canada and coal that provides half the nation's electric power, are
taken off the table.
The market knows full well what drives the economy and that restraining energy supply
will make us all poorer and investing less profitable. Taking domestic energy sources off
the table makes us more reliant on sources from hostile and unstable regimes, breeding
uncertainty in a capital system in which participants seek stability.
Lawmakers who seem more interested in pleasing special interests than voters back home
now control Congress. Some of the leading voices in crafting the massive bank bailout
and stimulus packages — including Sen. Chris Dodd, Rep. Barney Frank and House
Speaker Nancy Pelosi — were the very ones who helped get us in this mess.
They did so by loosening Fannie Mae and Freddie Mac's lending rules and pushing
commercial banks to make bad loans. Both Dodd and Frank were recipients of hefty
donations from Fannie, Freddie and other financial firms they were charged with
regulating.
Trade protectionism passes as policy, even amid the administration's lip service to free
trade. Congress' vast stimulus bill and its "Buy American" provisions limit spending to
U.S.-made products and will drive up costs, limit choices and alienate key allies.
Already, it has triggered rumblings of retaliation in a 1930s-style trade war from trading
partners, just as the Smoot-Hawley tariffs prolonged the Great Depression. Several
European partners have begun raising barriers. Meanwhile, three signed free-trade pacts
with Colombia, Panama and Korea languish with no chance of passage. Free trade offers
one way out of our problems, yet it's been sidetracked.
A 1,000-plus page stimulus bill is bulled through Congress with no GOP input and not a
single member of Congress reading it before passage. It borders on censorship.
GOP protests of the bill's spending and the speed it was passed at were dismissed by
Obama and other Democrats as seeking to "do nothing" or "breaking the spirit of
bipartisanship." But voters are angry.
Along with thousands of angry phone calls to Congress, new Facebook groups have
emerged, and street protests have sprung up in Denver, Seattle and Mesa, Ariz., against
the "porkulus." CNBC Chicago reporter Rick Santelli's on-air denunciation of federal
bailouts for mortgage deadbeats attracted a record 1.5 million Internet hits.
Business leaders are demonized. Yes, there are bad eggs out there like the Madoffs and
Stanfords. But most CEOs are hugely talented, driven, highly intelligent people who make
our corporations the most productive in the world and add trillions of dollars of value to
our economy.
They don't deserve to be dragged before Congress, as they have been dozens of times in
the past two years, for a ritual heaping of verbal abuse from the very people most
responsible for our ills — our tragically inept, Democrat-led Congress.
Words like "catastrophe," "crisis" and "depression" are coming from the mouth of the
newly elected president, rather than words of hope and optimism. Instead of talking up
America's capabilities and prospects, he talks them down — the exact opposite of our
most successful recent president, Ronald Reagan, who came in vowing to restore that
"shining city on a hill."
Even ex-President Clinton admonished Obama to return to his previous optimism, saying
he would "just like him to end by saying that he is hopeful and completely convinced we're
gonna come through this."
The missile defense system that brought the Soviet Union to its knees, and which offers
so much hope for future security, is being discussed as a "bargaining chip" with Russia.
This, at the same time the regime in Iran is close to having a nuclear weapon and North
Korea is readying an intermediate-range missile that can reach the U.S.
This sends a message of weakness abroad and contributes to a feeling of vulnerability at
home. A strong economy begins and ends with a strong defense.
All this in barely a month's time. And to think that more of the same is on the way seems
to be sinking in. Investors are watching closely and not caring for what they see. Sooner
or later, the market will rally — but not without good reason to do so.