Sunday, October 12, 2008

A Tough Sell

Marxists aren't the only axe-grinders that have been turning with renewed energy to the task of compressing reality to such an extent that it begins to sparkle once again with proof points for their theoretical seems that certain sub-species of libertarian are also feeling largely unchastened by recent events. (Though others might surmise that the Chicago School was about to go into an extended recess.)

Blogger Brian Micklethwait reports the views of Antoine at the 'Libertarian Alliance' talk:

"The most interesting thing I learned, assuming Antoine was right about it, was that after the first mega-billion dollar bale-out package failed to be agreed by the politicians of the USA, the market immediately went up. But then, as soon as a revised bale-out package, containing more bribes, was agreed, the market went down. "We should do nothing" is a tough political sell, but the smart move, said Antoine."

Well, let's not assume Antoine was right about this. If the market really worked this way, in perfect chronological step with major external events, even some of the floundering suits in Canary Wharf could have easily survived the credit crunch. Even the most novice of investors has probably heard the old adage Buy on the rumour, sell on the news.

Markets take time to digest major interventions like this - one reason trading in London may be deliberately suspended tomorrow after the government injects some cash into HBOS and RBS.

I can lay no claim to being as all-wise as the market, but from my position here - cashed out, sold up and moved away some time ago - this is how it looked to me:

- When Bush and Paulson first announced the concept of a bail-out the markets rallied.

- Anticipating a vote against in the House and witnessing the systemic incompetence of both the individuals and institutions concerned, non-US markets crashed first, eventually dragging the Dow down with them. What they saw were American lawmakers too wrapped up in their limited belief systems to take effective action at the critical moment.

- Yet just after the NO vote was announced the markets still tanked even further.

- Later in the week the Senate re-jigged the bail-out bill, but informed and not-so-informed commentators had already overrun the media, in many cases delivering a sceptical verdict on the capacity of the Bush-Paulson plan to free up inter-bank lending and recapitalise the system where it needs it most. Punters took note...

- By the time the bill made it back to the House, many investors had moved on psychologically to the end game. Any small rally that happened in-between these events was simply an artefact of the volatility that arises when drowning men thrash about in the water.

- Let's do nothing is surely not the smartest play right now...

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