Category Archives: Stock Market

Wall St. Slides, Fearing Return to a Recession – NYTimes.com

Investors seemed fearful that the $957 billion bailout package for Greece and other nations, while providing short-term protection against default, might drag out the economic pain and hurt the financial system in the process.

A continued hammering of the euro would make European exports cheaper, but the side effect would be weaker American exports, potentially dragging the United States — and the rest of the world — back toward recession.

“What you get is markets worrying about a whole cascading of weakness stemming from Europe being transmitted through the euro to the United States,” said Martin Murenbeeld, chief economist at DundeeWealth Economics in Toronto.

via Wall St. Slides, Fearing Return to a Recession – NYTimes.com.

via Wall St. Slides, Fearing Return to a Recession – NYTimes.com.

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Robert Reich: The (Almost) Crash of Wall Street

Ninety minutes before the end of the trading day Thursday, the U.S. stock market almost melted down. The Dow Jones Industrial Average dropped nearly 1,000 points. The market regained ground before the end, like a giant 747 narrowly averting a crash landing, but the questions of the day are: What happened? And what does it mean?

At this point no one knows why. Some say it was sudden burst of worries about Greece’s debt and the increasing possibility of a default that might cause a run by global investors. Others point to a “trading error.” Giant high-speed computers generate millions of trades based on instructions embedded in computer programs designed to move fast enough to beat everyone else. So when there’s a glitch in one of them it can immediately spread to all the other programs designed to move just as fast. Some say it was an erroneous trade entered by someone at a big Wall Street bank who mistyped an order to sell a large block of stock, and that the big drop in that stock’s price (Procter & Gamble?) triggered “sell” orders across the market.

Regardless of why it happened, it’s further evidence that the nation’s and the world’s capital markets have become a vast out-of-control casino in which fortunes can be made or lost in an instant — which would be fine except for the fact that most of us have put our life savings there. Pension funds, mutual funds, school endowments — the value of all of this depends on a mechanism that can lose a trillion dollars in minutes without anyone having a clear idea why. So much of the market now depends on computer programs and mathematical models that no one fully understands, so much trading is in the hands of a few people whose fat thumbs or momentary carelessness might sink the economy, so much of global wealth now depends on who can move their money quickest at the slightest provocation — that we are toying with financial disaster every day. The luck or foolishness of a few traders, and inside knowledge and information that some possess and others don’t, combined with ultra high-speed computers, put us all at the whim of a system whose risk is way out of proportion to any public benefits.

via Robert Reich: The (Almost) Crash of Wall Street.

via Robert Reich: The (Almost) Crash of Wall Street.

Obama to Propose New Limits on Banks – WSJ.com

WASHINGTON—President Barack Obama on Thursday is expected to propose new limits on the size and risk taken by the country’s biggest banks, marking the administration’s latest assault on Wall Street in what could mark a return, at least in spirit, to some of the curbs on finance put in place during the Great Depression, according to congressional sources and administration officials.

The past decade saw widespread consolidation among large financial institutions to create huge banking titans. If Congress approves the proposal, the White House plan could permanently impose government constraints on the size and nature of banking.

Mr. Obama’s proposal is expected to include new scale restrictions on the size of the country’s largest financial institutions. The goal would be to deter banks from becoming so large they put the broader economy at risk and to also prevent banks from becoming so large they distort normal competitive forces. It couldn’t be learned what precise limits the White House will endorse, or whether Mr. Obama will spell out the exact limits on Thursday.

Mr. Obama is also expected to endorse, for the first time publicly, measures pushed by former Federal Reserve Chairman Paul Volcker, which would place restrictions on the proprietary trading done by commercial banks, essentially limiting the way banks bet with their own capital. Administration officials say they want to place “firewalls” between different divisions of financial companies to ensure banks don’t indirectly subsidize “speculative” trading through other subsidiaries that hold federally insured deposits.

via Obama to Propose New Limits on Banks – WSJ.com.

via Obama to Propose New Limits on Banks – WSJ.com.

Stiglitz Says Crisis Exposed ‘Major Flaws’ in Economics Ideas – Bloomberg.com

eat Depression, having claimed more than 7 million U.S. jobs. Homeowners, investors and “probably” financial executives showed “marked irrationalities” and may have “bought into their own false arguments,” Stiglitz said.

“Economists should be included in the list of those to ‘blame’ for the crisis,” Stiglitz said in the presentation, which Bloomberg News obtained via e-mail. There’s now a “window of opportunity” to build new theories “based on more plausible accounts of individual and firm behavior,” he said.

via Stiglitz Says Crisis Exposed ‘Major Flaws’ in Economics Ideas – Bloomberg.com.

via Stiglitz Says Crisis Exposed ‘Major Flaws’ in Economics Ideas – Bloomberg.com.

Can Wall Street Save the World? – Tobin Tax

When President Obama wrangled an agreement in the waning hours of the Copenhagen climate change summit, left unsaid was how agreed-upon subsidies from wealthy nations to poor nations will be paid.

The ambiguity of the agreement, which calls for $100 billion to be doled out annually beginning in 2020, along with an appeal from several European Union members to tap into the financial markets, has given momentum to the prospect of a worldwide financial transaction tax to help pay the freight for climate change solutions.

Supporters say the money would be a boon to the environmental movement, helping developing nations deal with the ramifications of climate change.

“We support the fund, and we think it needs to be paid for and we think the U.S. ought to do its part,” said Bob Deans, of the National Resource Defense Council. Deans said the council has not taken a specific position on the tax, adding that it is one of many ways aid to developing nations could be funded. “There are several hundred million people right now dealing with the ravages of climate change, so we feel this needs to be funded in some way.”

If imposed, the tax would tack on a fee – 0.25% is the number mentioned most, but some envision it as high as 0.5% – to most financial transactions worldwide, including stock and bond purchases, currency transactions and derivative trades.

Estimates from various groups put the amount of potential revenue from the tax in the hundreds of billions of dollars annually, with more than $170 billion coming from the United States alone.

Also known as the Tobin tax, it is named for late economist James Tobin, who first proposed it in the 1970s when the United States abandoned the gold standard for its currency. Tobin theorized that an additional fee on currency transactions would discourage speculators and keep exchange rates stable.

via Can Wall Street Save the World? – FOXBusiness.com.

via Can Wall Street Save the World? – FOXBusiness.com.

Robert Reichs Blog: The Great Disconnect Between Stocks and Jobs

The result, overall, is an asset-based recovery, not a Main Street recovery. Yes, the economy is growing again, but the surge in productivity is a mirage. Worker output per hour is skyrocketing because companies are generating almost as much output with fewer workers and fewer hours. The Fed, meanwhile, has become an enabler to all this, making it as cheap as possible for companies to axe their employees. Money costs so little these days it’s easy to substitute capital for labor. It’s also easy to buy up foreign assets with cheap American money. And it’s now blissfully easy for Wall Street to borrow money almost free and buy all sorts of interests in foreign assets, especially commodities. Thats why were seeing the prices of foreign commodities and other assets go through the roof. At the same time, the Treasury continues to be fixated on keeping banks afloat. The Administrations mortgage mitigation efforts are lagging. Small businesses are starved of credit. The White House has announced a “jobs summit,” which is better than nothing but not nearly as good as pushiing immediately for a larger stimulus, a new jobs tax credit, and a WPA-style jobs program. The Fed and the Teasury have, in effect, placed a huge bet on a recovery driven by asset prices. That’s a bad bet. The great disconnect between the stock market and jobs is pushing stock prices way out of line with the real economy. This isnt sustainable.

via Robert Reichs Blog: The Great Disconnect Between Stocks and Jobs.

via Robert Reichs Blog: The Great Disconnect Between Stocks and Jobs.