In and of itself, the crash was not unique. What was unique, in
the wave of reforms that followed, was that the New York Stock Exchange
instituted a braking system to slow the process of panicked
stockholders selling en masse. It was hoped that the newly designed,
computer controlled system was “crash proof” but of course that was not
the case.
In the reform of 1987 inside operators gained access
to the inner workings of the market. More than ever, the New York Stock
Exchange became Voodoo Central for a market that has long depended on
conjuring illusions of prosperity.
Ostensibly, the exchange
was empowered to halt trading for up to two hours in a collapsing
market. In reality, we observe the workings of the braking system every
time we watch the ticker with a decline in progress. The numbers do not
flow as one would expect in a free flowing market; rather, they
stutter, stumble, stop and often freeze like a digital display losing
its pixilation power.
When the market seemingly froze late on
the trading day 27 February 2007 and then suddenly burst like a broken
dam, a stiff 250 point drop was revealed to stunned traders. What we
actually observed was a foot slipping off the brake.
The
market is and always has been a house of cards. It was in fact the
business model for the Enron-Anderson mega-corporation. Its function is
to generate capital and protect the interests of its most powerful
members. Like Enron, the market produces no useful product yet it
thrives on the belief that its services are essential. Just as
deregulation was the key to Enron’s excesses and ultimate collapse, an
unregulated stock exchange has produced every imaginable variety of
gaming, fraud and manipulation.
When the market crashes, as it
inevitably must, the biggest losers are always the small investors.
Going back to the Panic of 1893, when JP Morgan consolidated wealth and
redesigned the nature of money in America, the power players are always
protected. The eventual beneficiaries of every crash are the surviving
elite, the only ones standing to pick up the pieces of shattered
economies and shattered lives at bargain basement prices.
Always the one with the least to lose loses all. That is the way of the Dow.
Today’s economy has been wonderful for the wealthiest investors and a well-timed crash will only increase their net holdings.
Every
market crash shares certain characteristics: overvalued stocks,
under-funded debt, irrational optimism, and underlying economic
weakness. There is one unique feature in the current crash (whether it
is manifest in the coming days or further down the line): It is the
first triggered by a foreign market. In 1987, there were concerns that
Japan was too heavily invested in American assets but those concerns
are dwarfed by the current ownership of American debt by foreign
governments – most notably China.
What is happening now is a
perfect storm that will soon blow away the house of cards that is the
American financial marketplace. The combination of national debt,
individual debt and the looming implosion of the housing market is a
deadly convergence.
The American president, already known for
the worst foreign policy blunders in history, may soon have to account
for the worst economic meltdown since the Great Depression. Like Iraq,
Afghanistan and New Orleans, he is ill prepared to deal with the
crisis.
He is a free market man. That is the way of the Dow.
As
always with these dire predictions, I hope I am dead wrong. I know the
people who would suffer most. I am one of them. I am not an economist,
only an observer with eyes wide open.
I see the clouds, dark
and foreboding on the western horizon, and I know there is a powerful
storm heading this way. I see the writing on the wall and I know how to
read.
How long will it take our leaders to see what I see, to read as I read, and begin to make fundamental changes?
Jazz.
Writings 
The year was 1987. Cocaine was the drug of choice. Ivan Boesky and Michael Milken were the leading names in a widespread insider trading scandal. The Tower Commission held Colonel Oliver North and President Ronald Reagan accountable for the Iran-Contra “arms for hostages” scandal. Mark McGwire and Barry Bonds played their first full seasons in the major leagues. 
Subscribe to this comment's feed
