The heat has broken in Vermont; it’s perfect summer day. Maybe I should be outside, instead of merely sitting near the window, but I’m supposed to be working. I’m not working either.
I was working, but then I kept seeing the news about the stock market. I was going to write about something else today, in fact had it half written, but it seems superficial compared to what’s happening, so I’m subjecting you to this swirl of thoughts which cannot seem to cohere.
At this point, the Dow is off 350 points in mid-day trading, which is nothing compared to the 777 point drop we had one day in 2008, but this time Italy and Spain are getting sucked down the drain in Europe. It’s one of those days when you just want the markets to close so the bleeding can stop, except that the Asian markets open a few hours later and the whole thing continues.
They told us the great crash of 1929 could never be repeated. It was caused because people were allowed to buy stocks “on margin.” If a stock cost $20 per share, one could buy it for say $5 a share and a promise to pay the other $15 later. If the stock rose to $30/share, one could sell it, pay off the other $15 and keep $10 profit. Many people did this, including my grandmother, who was a secretary at a brokerage firm.
When the market turned bear, brokers started making “margin calls,” that is, forcing people to pay what they owed, but since the price of stocks was falling rather than rising, people didn’t have the cash to cover their margins, which accelerated the crash. Investors – grandma included – were wiped out.
In the crash of 2008, the same damn thing happened, except it wasn’t called “margin,” it was called “leverage” and it wasn’t individuals, it was banks and hedge funds and the rate was running 36 dollars of margin, er, leverage to every dollar of cash.
What the market really learned in 79 years was a) keep the little guys away from the party and b) lobby the crap out of the federal government, so that when the market again turns bear and everything goes to hell, the little guy gets the bill and is wiped out. Again.
I hate to go on like this, but the mainstream media has done a poor, almost criminal, job of explaining this. It’s not that complex.
What is different this time around is that instead of haplessly trying to fix things (as Herbert Hoover did) or effectively mending things (as Franklin Roosevelt did), we have developed a cancerous politics that feeds on this misery and turns it to advantage, as some other people around in those days did. How many times will we see that dark side this time around? In Greece? Italy (again)? Norway?
That’s what the last month in Washington has been about: seeking political advantage and the Republican Party doesn’t care who gets hurt. Over and over right wing activists talk about making government small enough to “drown in a bathtub,” but it’s not about drowning. It’s about making government weak enough that it cannot stand up to the corporations who are funding the politics that are crippling the government.
Maybe that’s OK with you. Maybe you think you like the idea of small government, but read the paragraph above. I didn’t write “small,” I wrote “weak” as compared to the multinational corporations. For 30 years the politicians owned by the multinationals have told us that making life easier for business will make life better for people, but it hasn’t and it won’t.
The real difference between 1929 and now? There’s no where we can go to escape this.
Drowned in a Bathtub
The heat has broken in Vermont; it’s perfect summer day. Maybe I should be outside, instead of merely sitting near the window, but I’m supposed to be working. I’m not working either.
I was working, but then I kept seeing the news about the stock market. I was going to write about something else today, in fact had it half written, but it seems superficial compared to what’s happening, so I’m subjecting you to this swirl of thoughts which cannot seem to cohere.
At this point, the Dow is off 350 points in mid-day trading, which is nothing compared to the 777 point drop we had one day in 2008, but this time Italy and Spain are getting sucked down the drain in Europe. It’s one of those days when you just want the markets to close so the bleeding can stop, except that the Asian markets open a few hours later and the whole thing continues.
They told us the great crash of 1929 could never be repeated. It was caused because people were allowed to buy stocks “on margin.” If a stock cost $20 per share, one could buy it for say $5 a share and a promise to pay the other $15 later. If the stock rose to $30/share, one could sell it, pay off the other $15 and keep $10 profit. Many people did this, including my grandmother, who was a secretary at a brokerage firm.
When the market turned bear, brokers started making “margin calls,” that is, forcing people to pay what they owed, but since the price of stocks was falling rather than rising, people didn’t have the cash to cover their margins, which accelerated the crash. Investors – grandma included – were wiped out.
In the crash of 2008, the same damn thing happened, except it wasn’t called “margin,” it was called “leverage” and it wasn’t individuals, it was banks and hedge funds and the rate was running 36 dollars of margin, er, leverage to every dollar of cash.
What the market really learned in 79 years was a) keep the little guys away from the party and b) lobby the crap out of the federal government, so that when the market again turns bear and everything goes to hell, the little guy gets the bill and is wiped out. Again.
I hate to go on like this, but the mainstream media has done a poor, almost criminal, job of explaining this. It’s not that complex.
What is different this time around is that instead of haplessly trying to fix things (as Herbert Hoover did) or effectively mending things (as Franklin Roosevelt did), we have developed a cancerous politics that feeds on this misery and turns it to advantage, as some other people around in those days did. How many times will we see that dark side this time around? In Greece? Italy (again)? Norway?
That’s what the last month in Washington has been about: seeking political advantage and the Republican Party doesn’t care who gets hurt. Over and over right wing activists talk about making government small enough to “drown in a bathtub,” but it’s not about drowning. It’s about making government weak enough that it cannot stand up to the corporations who are funding the politics that are crippling the government.
Maybe that’s OK with you. Maybe you think you like the idea of small government, but read the paragraph above. I didn’t write “small,” I wrote “weak” as compared to the multinational corporations. For 30 years the politicians owned by the multinationals have told us that making life easier for business will make life better for people, but it hasn’t and it won’t.
The real difference between 1929 and now? There’s no where we can go to escape this.
© Mark Floegel, 2011