The stockbrokers and newscasters put on their happy faces and tell the hoi poloi to stay calm, and to not sell off their stocks as the values crash. On the other hand the big players are selling. Otherwise there wouldn’t be a rout. And some are making lot of money. They saw this crash (sorry, I mean “correction”) coming and sold short. That means they bought stocks on one date and agree to pay for it at a certain time in the future (when hopefully for them) the price is way down. A number of hedge fund managers made out like bandits betting stocks would go down.
Irresponsible credit like subprime mortgages brought on the Great Recession. Rather than fight it with jobs programs like FDR in the ‘30’s, or something even more radical, Obama had the Federal Reserve open the spigot charging the big banks 0% for prime loans. Eventually things picked up. But the banksters and titans of coporate America didn’t invest all of the loans in new factories and machines, not by a long shot. Last week Pam and Russ Martens of the site Wall Street on Parade wrote:
“Corporations have issued a stunning $9.3 trillion in bonds since the beginning of 2009. The major beneficiary of this debt binge has been the stock market rather than investment in modernizing the plant, equipment or new hires to make the company more competitive for the future. Bond proceeds frequently ended up buying back shares or boosting dividends, thus elevating the stock market on the back of heavier debt levels on corporate balance sheets.”
In other words the execs had the company borrow cheap money to buy back stock to raise its price so they could personally get richer. Whatever.
Now it’s quite possible this all could be a kerfuffle with no lasting effect. Stocks have crashed plenty of times in the past and then come right back. This time it looks a little more real. China’s economy is having real trouble. Production and retail sales are slowing. The Communist Party went long on stocks and bonds and their response to the crash is to send worker pension funds into the breach.
How does a falling stock market affect the “real” business of buying and selling? Well, for one thing all those people who invested in stocks because banks were offering 0.000001% interest rates go into shock and stop buying refrigerators, cars, IPhones and the like. Some companies who gambled in stocks go belly up…and so it starts.
Next Time Do it Right
Sooner or later there will be another crash, recession, depression or some other name that the big shots think is not too frightening. Hopefully some clear thinking people will realize that neither another blank check to the banks nor the populist nostrums offered by Bernie Sanders and his ilk will do the trick.
We need to get rid of capitalism. We need to replace it with eco-socialism, a planned economy based on 100% renewable energy with full workplace democracy. All the rest is a diversion as we run out of time, as the clock ticks down and climate catastrophe is locked in and humanity is screwed.