The Crash of 1929: Are We on the Verge of a Repeat?

[marmar]

from AlterNet:


The Crash of 1929: Are We on the Verge of a Repeat?

By Scott Thill, AlterNet. Posted July 26, 2007.



Hedge funds have helped create a counterfeit economy that some experts say could lead to another full-blown economic depression.

said that guys like me were ''in what we call the reality-based community,'' which he defined as people who ''believe that solutions emerge from your judicious study of discernible reality.'' I nodded and murmured something about enlightenment principles and empiricism. He cut me off. ''That's not the way the world really works anymore,'' he continued. ''We're an empire now, and when we act, we create our own reality. And while you're studying that reality -- judiciously, as you will -- we'll act again, creating other new realities, which you can study too, and that's how things will sort out. We're history's actors ... and you, all of you, will be left to just study what we do.'' -- Ron Suskind, "Without a Doubt," New York Times

The hypermarket beckons

News flash: The American economy is a hyperreality engineered by Ph.D.s working hand-in-hand with colluding media multinationals, political officials and some of the biggest names in business -- and the banks that invest in them. In other news, greed is still good.

Of course, the idea that Wall Street is corrupt is as old as Wall Street itself. After all, the immortal "Greed is good" aphorism was muttered by a white-collar criminal in the 1987 movie named after Wall Street, which was directed by a guy, Oliver Stone, who made his name in postmodern cinema and political agitation. In fact, a film of the same name came out in 1929, the year of the stock market crash. And so the narrative replicates.

Speaking of replicants, Oliver Stone is a man who tackled not only labyrinthine presidential conspiracies in the 1991 film JFK but also the numb pathos of 9/11 in last year's World Trade Center. Indeed, Wall Street indirectly tackled the junk bond and insider trading economic screw-jobs that riddled the '80s like so many overpriced, overly puffy hairdos. Stone envisioned the film as Crime and Punishment on Wall Street, which was only partially fitting for the time because there was a ton of crime and very little punishment.

And the more things have changed, the more they have stayed the same. Indeed, only the nomenclature has been altered. Instead of junk bonds and insider trading, we have hedge funds and private equity takeovers. And instead of Gordon Gekko and Wall Street, we have Fox News mogul Rupert Murdoch and, soon, the Wall Street Journal.

In the 1980s, guys like Michael Milken and Ivan Boesky -- who anticipated the "Greed is good" phrase with a 1986 commencement speech at Berkeley in which he stated, "Greed is all right. ... I think greed is healthy" -- were riding high on schemes that failed. Both served as inspirations for Stone's Wall Street scumbag Gordon Gekko, but both got off with a few years in prison and a few hundred million dollars lost. Milken shaved a 10-year sentence down to two, and in 2007, still had a net worth of about $2 billion. Roll the happy ending.

But the hyperreality does not end there, and by hyperreality I mean simply a reality that exists outside the one you live in, whoever you are. It can come in many forms. Film is one such simulation, network and cable news is another, and our two-party political machine, as Ron Suskind explains in the quote at the top of this article, is a finer-tuned one still. But they all collide and collude in the social space of Wall Street and its various markets, on the internet and on the trading floors of the New York Stock Exchange and onward. .....(more)

The complete piece is at: http://www.alternet.org/story/56443/

[dipsydoodle]

1. Movement away from the petrodollar

is likely to cause far more harm.

[dmallind]

2. To be honest probably not

Of course there will be cyclical falls and rises and of course individual stocks or sectors even will crash and burn from time to time but there is one structural factor present now that was not in 1929 and that is the constant stream of billions of dollars in 401k contributions pumped into the markets on a monthly basis. In 1929 only a tiny fraction of the population owned equities - now over half do. I know it's tempting to try and say Bush will destroy everything and I suspect it's also tempting for those given to schadenfreude to even hope for "the rich" to lose everything again (even though most investors in equities are of course far from rich) but in this case the worst I can see happening is a temporary (even far more temporary than in 1929 with far less of a broad base for new investment dollars) dip.

Yes you can predict that in some future economic collapse everyone will pull their money from stocks and stop paying into 401k funds but that ignores the far more widespread understanding of how markets work these days, and savvy long term investors not nearing retirement would be in that case likely to INCREASE their 401K and IRA investments, knowing that even the 1929 crash was recovered some 7 years later (look at dividends and deflation - so real term - not just the index number. After that the marlket crashed again and recovered again in real terms twice before the DJIA increaed above precrash levels in 1954), again without the base of tens of millions of wage earners pouring retirement money into the market. I can't see a great likelihood of any dips lasting more than a few years as long as we avoid a disatstrous decline in the value of the dollar. As another poster said that's much more of a risk, but even there we are somewhat protected by our status as the world's biggest consumer market. Just klike China is doing now, exporting countries have it in tehir best interests to protect the dollar from freefall so they can continue to sell goods to us and receive something nore valuable than grass seeds in return. The reason China buys up a bunch of US debt isn't really some macchiavellian plot to "call it in" and own us - it's because they have a boatload of dollars to spend form our imports of Chinese goods and because they want to keep that happening.

[cliss]

3. A repeat?

Answer = Probably.

Only this time, it will make 1929 look like a Kindergarten tea party. We are SO much more invested in the market today. Almost everyone is in one way or another involved in the market. Either directly or indirectly.

That's what makes us so vulnerable right now. Even a small shudder could push the whole thing into the abyss. That's how leveraged we are.

[eridani]

4. Naked shorts, Clinton and Obama

http://www.truthout.org/docs_2006/072607F.shtml

"The SEC has just very recently finally agreed that this is a very serious problem that is destroying some companies and undermining the integrity of the markets," he explained. "They came out with regulations in 2005, which we criticized for having huge loopholes. But this year, the SEC finally said their attempts to address the problem have failed, so they are seriously tightening the regulations. Now we'll see if they enforce them."

But history, as always, likely will teach a different lesson. Consider two events in that regard. The first happened after - and because of - the 1929 Crash: The Glass Steagall Act of 1933 mandated the separation of bank types according to their business, after the Senate-led Pecora Commission investigation of the crash found that collusion between commercial and investment banks played a major role in it. That act stood for 66 years, until none other than Bill Clinton repealed it in 1999, and here we are again.

Here's the other lesson: According to a recent Financial Times story, "Barack Obama received more donations from employees of investment banks and hedge funds than from any other sector, with Lehman Brothers, Goldman Sachs and JP Morgan Chase among his biggest sources of support." While Obama has already promised to increase regulation on hedge funds and the tax burden on private equity groups (or today's "pools," as Byrne explained them), if he becomes president, one can imagine he'll be singing quite a different tune if he becomes the first black man in history to run the White House.

<snip>

And for those of you who think that may be too broad a generalization, consider this: As the Huffington Post explained, "By taking advantage of a provision in the law that allows expanding companies like Mr. Murdoch's to defer taxes to future years, the News Corp. paid no federal taxes in two of the last four years, and in the other two, it paid only a fraction of what it otherwise would have owed. During that time, Securities and Exchange Commission records show that the News Corp.'s domestic pretax profits topped $9.4 billion."

Can you say free ride?

For those who argue that Murdoch and hedge funds are miles apart, consider this: He knows how to hedge just fine, thanks. After all, it was none other than current Republican presidential candidate Rudolph Guiliani who in 1996 threatened to run Fox News commercial-free on a city-run access channel if Time Warner Cable didn't end its 11-month battle to keep Murdoch out of New York households. It's also important to note, especially if you are Murdoch, that it was Guiliani who implemented RICO statutes to nail Michael Milken with 98 counts of racketeering and fraud. But Murdoch is an old hand at hedging: He's so far funneled $40,000 into Hillary Clinton's campaign. Whoever loses, he wins.