Tuesday, September 30, 2008
Reading all your comments convinces me that you folks have a good understanding of what is going on. So I have a question about which I would appreciate your comments to help me understand something. The question is "What has Wall Street done to be blamed for this? Also, why have I not heard any names of those responsible on Wall Street? "I know there has been some short selling and then reports put out that would bring down the value of a company which would make the appearance of that company look bad, thus causing their stock price to fall, thus benefiting the short sell. Is that the only reason for blaming Wall Street?"
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2 comments:
Uncle Dean, I hope this article helps.
The Perils of Herding to Cash
Trying to time market may erode long-term returns
August 15, 2008
Editor's Note: The following article was produced by Fidelity's Market Analysis, Research, and Education (MARE) group, a unit of FMRco. that provides timely analysis on developments in the financial markets.
During the first half of 2008, falling stock prices and the proliferation of "bear market" headlines led some investors to flee to cash.
This flight to safer investments recalls similar investor behavior in 2001-02, when a bear market coincided with sharp increases in flows to money market funds. For example, in October 2002, money fund assets stood near an all-time peak of nearly 35% of all mutual fund assets (reached in January 2003). This cash surge coincided with the low in the S&P 500® and a spike in "bear" headlines.
Although a new bull market began in October '02, investors kept an above average level of cash until February '04 -- meaning in the aggregate, investors over-allocated to cash during a 15-month period when stocks rose more than 30%.1 As a result, some investors who kept long-term capital tied up in cash likely missed out on considerable gains.
The bottom line: stay invested
Historically, investors have increased cash positions during bear markets but have been slow to reallocate to stocks. Sudden corrections -- and sudden rallies -- have been a normal part of the stock market over time, and attempting to move in and out of it can be a costly endeavor.
Your questions are excellent.
First,
"What has Wall Street done to be blamed for this?"
The source of this problem is often described as "Greed," "The excesses of Wall Street," blah, blah, blah. Wall Street have behaved as it always has in the pursuit of profit. It is the capitalist system. In the current crisis, the government push banks and financial institutions to lend money, even in highly unwarranted ways. Considering that the government was pushing these loans, the banks, etc. assumed that the government would bail them out if things flopped, so the banks, etc. were pushing money out the door as if they had printing press in the bank lobby. Freddie Mac and Fannie Mae cooked their own books to make it appear as if things were rosy. The Sarbanes-Oxley Act that was enacted to forbid goofy accounting procedures (Enron, etc.) did not include GSEs (at the behest of the Democrats - Heaven forbid killing the cash cow!) So banks thought that things were a-ok. So it's only minimally Wall Street's fault. The main culprit here is the government, and Freddie Mac and Fannie Mae in particular.
Second,
"Also, why have I not heard any names of those responsible on Wall Street?"
Because they are not guilty.
The reason why no names have been thrown out there for subpoenas and prosecution is that it is the congress itself who is guilty.
The Democrats excluded Freddie Mac and Fannie Mae from Sarbanes-Oxley, the Democrats prevented the Republicans from carrying out oversight, and the Republicans lacked courage to push the issue (there were fears being called racists because most of the Democrats who were raising a stink were from the Black Caucus). Freddie Mac and Fannie Mae cooked their own books so the execs (Franklin Raines - Obama Economic adviser, Jamie Gorelick - (D) 911 commissioner, and others) could get bonuses.
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