With the Market on the Slide, Are We Stuck On Obama’s Wild Ride?
Finger-pointing. It is practically built into our DNA. When animals make a mistake, like crossing a busy intersection, they pay the price with their lives. Humans, on the other hand, have the distinct advantage of being able to blame others for their mistakes. For “survival” purposes, this happens often (We all know you blamed your brother for that broken vase you knocked over).
When the entire financial crisis started to unfold, it was inevitable that people had to get mad at someone. It was merely a question of who?
After months of unraveling events, everyone from George W. Bush to Bernie Madoff to the average consumer has been blamed for bringing about economic catastrophe. Time.com even did an entire poll asking people to vote on who is to primarily blame for the financial crisis.
Two weeks ago the support level of 7500 was broken through on the Dow Jones Industrial Average, a support level dating back a decade, and the market appears to be in free fall again. Now some conservatives and capitalists are beginning to aim that finger at the new commander-in-chief. With policies favoring the lower-middle class and sharp admonitions of Wall Street, President Obama seems to almost be on the attack against the markets. Yet, to blame one man (albeit a man with arguably the most power in the country) strikes me as being entirely too shortsighted.
Anyone who has worked in Wall Street long enough can tell you that the day to day fluctuations of the markets are a tough thing to predict. That’s why everyone isn’t getting rich off of them. In fact, many days it seems economic data is pointing in one direction, while the market heads in the other. And the very reason for this seemingly irrational behavior? The markets are forward-looking. They are based much more on what people believe will happen in the future than what is currently happening.
Some have predicted that the continued bailouts of large banks by the Obama administration point in the direction of nationalization in the future, something the markets are heavily opposed to. There is evidence to support this claim: On Friday, February 20th, the rumors began to circulate that Citigroup [C] was being seriously considered for nationalization because of its substantial losses. The stock closed at 2.51 the previous day and on the open quickly dove over 35% to 1.61. But then in the afternoon, the administration held a press conference wherein they vowed that Citigroup was in no danger of being nationalized. Suddenly, the stock shot back up, finishing down 22% at 1.95. Although the stock closed down because of its questionable solvency, it still managed to pare some of the losses when fears of the Obama administration nationalizing banks had subsided.
However, what the reporters on CNBC and others calling for Obama’s head appear to be missing is that the stock still finished much lower. Why? Because every single day it becomes clearer that the major banks are insolvent. Although Obama and his staff may be at fault for keeping the banks going with additional funds, allowing the insolvency to be masked for longer, they are not the blame for the fact that the banks are already insolvent.
So where can a pissed off citizen or investor point that idle condemning finger? Unfortunately, it will never be as easy as finger-pointing. There are so many parties and people to blame for contributing, going back even decades, that to blame only one person would be a great injustice. The market will not settle until the full information regarding the health of the largest financial institutions in America is made fully public. Yes, in the meantime Obama could very well compound the problem with policies that only further support failures, using his finger to plug the leak in the crumbling dam, but the flood is already a foregone conclusion and a continuing downward slide is inevitable regardless.
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