Nouriel Roubini: Markets may be forcibly shut
Friday October 24, 2008
Categories: Decline and fall, Economics
Nouriel Roubini is even more grim than usual (and that's saying something): Hundreds of hedge funds will fail and policy makers may need to shut financial markets for a week or more as the crisis forces investors to dump assets,...
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Rod Dreher is an editorial columnist for the Dallas Morning News, and author of "Crunchy Cons" (Crown Forum), a nonfiction book about conservatives, most of them religious, whose faith and political convictions sometimes put them at odds with mainstream conservatives. The views expressed in this blog are his own.
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Um, who exactly is going to "forcibly shut" the markets? The US Army? The FBI? ATF? The stock market is not a part of the government, you know. If the government says "The New York Stock Exchange is hereby ordered closed for one week" and the NYSE says "Up yours, Uncle Sam" what then? This is ridiculous.
Yup, I can see now we definitely need radical tax increases, massive new entitlements, and a lot of really, really expensive green regulations to pull us out of this one. Maybe we could just make it illegal to lay someone off and illegal to broke.
As we've learned from Douthat and Parker... Definitely better to have the radicals in charge than let a commoner near the seats of power.
"The New York Stock Exchange is hereby ordered closed for one week" and the NYSE says "Up yours, Uncle Sam" what then?
Then the next time the socialists on Wall Street need to be bailed out they might find that things don't go so well. They'll comply! They always do!
The central government can, in fact, order the stock market closed. If my memory serves, a "circuit breaker" regulation was put into place allowing for the market to be closed if it drops more than 1,000 points or 5 % in a day. This was done after the blowoff in '87.
I would NOT want to be running a hedge fund right now, nosirree Bob.
Your servant,
Lord Karth
The NYSE will roll over and play dead if told to do so. And I see that Nightstalker is crying the blues about radicals. Funny that he seems to have missed that the partial nationalization of American banking came about under his beloved Republican Administration, along with a breathtaking increase in the national debt. Seems pretty radical to me.
In related news, my bank National City was just bought out. Great.
I find these number-free pronouncements disturbing. I have yet to see anything approaching a fact regarding these hedge funds: Roubini is saying thirty per cent, but why he's saying that I don't know.
Because hedge funds are so highly leveraged I'd be surprised if they weren't on the leading edge, rather than the trailing edge, of the current upheaval. Unless they're involved in emerging market equities or some other set of issues that should be considered "second-wave" or "third-wave" after sub-prime mortgages, collateralized debt obligations, and interbank lending.
I realize these numbers are hard to come by given that hedge funds aren't regulated, but I'd love to see someone explain why thirty per cent and not twenty-five or fifty.
The government can order the market closed in an emergency but all that would do would be to move the trading offshore and have no practical impact at all.
This whole thing seems so ridiculous to me. Things get bad and our investor class responds by going nuts and making sure it REALLY tanks so they can avoid losses they would no doubt regain within a few years if they just kept their heads. Just stupidity on a grand scale. And we'll all pay for their unwillingness to suck it up and deal with some temporary hits. The hedge fund thing is going to be really ugly. I guess you can only get your money out a few times a year and everyone is busy notifying their hedge fund managers that they are pulling their money out the next time they are able. Major dumping. This whole thing is just dumb.
Any idea what has happened to former Louisiana congressman Richard Baker, who left office not so long ago to work as a hedge fund lobbyist?
I wonder where he is in all this...
All of this would be silly if it were not so stupid. I would never bet against the US economy. History repeats itself over and over. The housing market was over invested in bad loans. Why should not the US government allow this to fail if the investments were bad. The simple truth is that I hold no stocks and have no outstanding loans to protect. All of this has happened before and will happen again. How does this affect my Orthodox Faith? It does not and will not happen. Those who trust in God and His Son will not go hungry!
John Lee
1. Existing law apparently does authorize the President to shut down the markets. See
washingtonpost.com/wp-srv/business/longterm/blackm/plunge.htm
[I tried & failed to find a legal citation for this authority, but I'm pretty sure it exists. If someone could point me to one, I'd be much obliged.]
2. Even in the event of a market shutdown, informal trading could still occur, e.g., among some of the bigger banks. One doesn't need an open exchange to trade securities; indeed, one of the problems with CDS is that they _aren't_ traded on exchanges.
3. A market shutdown might be useful for halting a panic with no rational basis. If, however, a mass selloff of stocks, etc., _does_ have a rational basis (e.g., world slipping into recession, PRC dumping dollar reserves), then shuttering the markets only delays the inevitable.
4. Apparently, there's lots of hedge fund redemptions occurring right now. Plus, with the credit crunch is no longer getting top billing, recession concerns are now getting more play. I suspect these two factors are among those underlying this week's serving of market volatility.
I sincerely hope that the hedge funds DO go belly up, and many of their CEO's jump out of the nearest windows. They are a despicable bunch, and what they've done to our economy is treason. The selling of airballs has suddenly stopped! The sky is falling! We need government handouts!
They can all go STRAIGHT TO HELL.
actually, Jay...
the root cause goes back to Carter establishing the Community Reinvestment Act...
Clinton then tweaked the CRA and the subprime mess followed...
but...
let's not leave out Reagan...
he taught government to run up massive debt and leave it for future generations...
that lesson of risky debt was then picked up by business and individuals...
yes...
it worked for Reagan...
he's dead and gone and we now are dealing with the problems caused by his teaching our culture to not worry about running up massive risky debt...
and GW Bush has used Reagan as his model...
prosperity faith hope love joy peace to all...
Forgive Reagan...
regarding hedge funds...
(economists please chime in...)
it seems that when these funds are about to go belly up...
they are forced to sell off all of their holdings...
and they apparently often do so in the last hour of trading...
so that's why on some of the worst days of the stock market, there has been a severe plummet between 3 and 4 pm...
also...
I have seen a report that most of this severe deleveraging is now over...
but...
many hedge funds will continue some deleveraging into December...
so...
if anyone is looking for a bottom to this bear market...
don't hold your breath...
prosperity faith hope love joy peace to all...
Forgive Reagan...
and...
more deleveraging...
so says Peter Schiff at europac dot net:
it seems that lots of troubled funds are needing to sell off their gold...
and that shows up now in declining gold prices...
but...
when most of this deleveraging ends...
gold prices will soar...
and the dollar will drop in value...
leading to very high inflation...
but...
hey, have a nice day...
abundance faith hope love joy peace to all...
Forgive Reagan and God...
and yet more...
what about commodities, you may ask...
when the majority of the deleveraging ends...
commodities should gain in value...
while stocks fall as earnings drop in the coming Greater Depression 2.0...
so...
as the major deleveraging comes to an end...
then...
stocks down...
dollar down...
inflation up...
commodities up...
which means oil will soar...
here's hoping this doesn't happen before Spring...
after the heating oil season...
abundance faith hope love joy peace to all...
Forgive Reagan and Greenspan...
"Hedge" funds?
More like "leveraged-out-the-ass" funds.
godisaheretic,
The Community Reinvestment Act (CRA) has been blamed for the current financial crisis, but the CRA does not apply to institutions making the vast majority (80%) of troubled loans underlying the crisis. The Federal Reserve Bank earlier this year said the CRA has actually increased the volume of responsible lending to low-and moderate-income households.
http://tinyurl.com/3sjcfj
thanks, Jim, that's a somewhat good article...
though...
keep in mind that it's partly spin...
you refer to the 80% figure...
which means at least 20% of troubled loans fully apply to CRA...
and the article clearly states that up to 30% more of the troubled loans at least partly apply to CRA...
also you refer to CRA as increasing "the volume of responsible lending" to low-income households...
yes, no doubt that is true...
what is also true but goes unsaid is that CRA (based on those above percentages) is also responsible for increasing the volume of irresponsible lending...
see how the article is spun to state the positive and leave the negative unsaid?
the article also says that banks found CRA to be good business...
sure, they did...
because they could dump those risky loans onto Fanny and Freddy...
look, I'm not saying any one program or one group or one person or one anything is responsible for this financial mess...
but it seems that CRA was the leading edge pointing the way forward for banks to give out ever more risky loans and then quickly dump them onto Fanny and Freddy...
so yes, CRA can be fairly said to be only a small part of the current problem...
but CRA was a leader for all those others who made the problem so much bigger...
so credit should be given where credit is due...
to Carter and Clinton...
and, of course, Reagan and GW Bush and Greenspan...
and others...
abundance faith hope love joy peace to all...
Forgive Reagan...
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