More On "Irrational Exuberance"

Last time I closed with a bit about how, most of the time, the brokers and traders who buy and sell on the stock market, and thereby determine market prices, have very little idea what they‘re doing. While they’re not always exuberant — and lately they’ve been far from that — to my mind they’re often irrational. These are the guys who Michael Moore recently described as Wall Street “Ponzi schemers who concocted Byzantine ways to bet other people's money on unregulated credit default swaps, known in the common vernacular as unicorns and fairies.” In any event, there’s another compelling story of irrationality in the market last week. On Monday, December 1, the Dow Jones average once again went into the tank, this time for a minus 680 points (7.70%). It was the fourth biggest point drop and the 12-biggest percentage drop in history — and history means since the Dow was created in 1896. The reason: well, according to the experts, the reason was that a committee of economists (the National Bureau of Economic Research) “officially declared” (the operative words) that we are in a recession. Yes, these guys announced we are in a recession and, not only that, but said that we’ve been in it since last December! And so the Dow took another dive. Never mind that everyone has known this for some time — the economic indicators (gross domestic product, unemployment rate, stock prices, bank closings, mortgage foreclosures, wholesale prices, and the like) have all been doing bad things for quite a while now — so, in real time, nothing actually changed. Except that the recession was “officially declared.” So it follows that the market plummets. Right? Wrong. Actually, there is a way of handling such terrible statements of the obvious. To learn how to do this we have only to turn to our good friends in Latvia. Yes, no kidding: Latvia. On the same day we got the official bad news about the recession, the Wall Street Journal reported that Latvia recently took the “novel step” of containing its economic crisis by directing its Security Police to bust an economist for being “too downbeat.” “Too downbeat” . . . hmm. Presumably that would include shouting from the rooftops that we’re in a recession. Over in Latvia it seems that Dmitrijs Smirnovs, a 32-year-old university lecturer in economics, was taken into custody and questioned for two days for “badmouthing the stability of the Latvia’s banks and the national currency.” “All I did was say what everyone knows,” said Dmitrijs, which, of course, is exactly what was done here last Monday. The Police ordered him to keep quiet, not to leave the country, and confiscated his computer, in what was described as a “form of deterrence” designed to protect “state economic security.” Hopefully, the guys in Washington and New York who oversee our stock market (if there are any) will learn from this, for we probably could have avoided this most recent historic fall in stock prices altogether if the committee of economists had simply been told in advance to shut the fuck up.