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Our Man Has Won; Now What? Suggestions Welcome

By Fredrick Bernanke - Oct 9th, 2008 at 11:48 pm EDT

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[Originally posted on my blog, http://ProteanPerspectives.blogspot.com ]

Thursday, October 9, 2008

Capitalism's Call to 911

The Capitalist System
Can It Be Fixed Without Being Diagnosed?
Can It Be Fixed Without Being Diagnosed?

A Different Look at the Dow

All the headlines will read that the Dow was down 679 points in today's trading. Those headlines will be accurate because tradition (and logic and ease of comparison factors) dictates that one measures the daily change in the Dow (and all other indexes and individual stocks and commodities) by comparing the current day's closing price to the previous day's closing price.

The Dow closed yesterday at 9258; it closed today at 8579; 9258 - 8579= (679).That represents a 7.33% loss for the day.

But the Dow trades from 9:30 AM to 4:00 PM (all times Eastern) everyday, including today. Most professional traders and virtually all financial journalists essentially disregard the numbers generated during the trading day, as mentioned above.

But let's take a peek at the numbers during the day. The pros call that action intra-day trading.

At approximately 9:45 AM, the Dow stood at 9448, the high for the day. From there it went on to close at 8579. That represents a drop of 869 points. Another way of looking at it is that, from its high for the day (9448,) the Dow lost 9.10% of its value.

Using either the traditional yardstick, which showed the Dow down 7.33%, or the non-traditional one that produces an intra-day loss of 9.10%, these are remarkable numbers that are usually associated only with very speculative, individual stocks. Stocks like those are known for their volatility, best defined as the propensity of their price to move often and widely.[Note: The Dow is down 40% from its all-time high.]

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So, what's the point?

The point, I think, is that this behavior in the market(s)--after all the efforts and trillions of public dollars expended by our and other governments--is a strong argument that nobody--nobody!--knows what the problem(s) is and, ipso facto, cannot know what the solution is.

Analogy: Obviously sick patient brought to hospital with multiple symptoms. Situation obviously serious, maybe grave. Diagnoses vary from specialist to specialist, no one diagnosis can be agreed upon.

Hospital reacts by administering huge doses of antibiotics, anti-depressants, muscle relaxants, pain killers, virtually any drug that's in the cabinet; cardiac surgeons perform triple bypass; kidney specialist hooks patient up to dialysis machine and so on. Fortunately, that's not how the medical community would react.

If the proposition that no one has accurately diagnosed the illness is true, this is not the time for more shotgun squandering of monumental sums of public funds on well-intentioned, but thus far ineffective solutions to an inscrutable problem.

Question: Which is worse, (a) no immediate new action by the US Government, (b) immediate new actions along the lines of the old ones, or (c) an attempt at "buying time?" Option (c) would be something like the declaration, in concert with other nations, of a "Bank Holiday," starting tomorrow and running through next Monday, removing the second-to-second pressures on policy-makers associated with gyrating trading markets.

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From: History.com

March 5, 1933
Roosevelt declares bank holiday

When Franklin Roosevelt started his first term in the White House in 1933, he inherited a nation in the depths of the Depression. A record 13 million Americans were unemployed and businesses were drowning in red ink. Perhaps even more pressing was the head-spinning string of bank failures which had triggered a frantic run on the nation's savings vaults. The wave of withdrawals by panic-stricken depositors further dried up banks' already-depleted supply of liquid assets and pushed the nation's banking system to the brink of disaster. On March 5--the day after being sworn into office--Roosevelt stepped into the breach and declared a "bank holiday," which, for four days forced the closure of the nation's banks and halted all financial transactions. The "holiday" not only helped stem the frantic run on banks, but gave Roosevelt time to push the Emergency Banking Act through the legislative chain. Passed by Congress on March 9, the act handed the president a far-reaching grip over bank dealings and "foreign transactions." The legislation also paved the path for solvent banks to resume business as early as March 10. Three short days later nearly

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