The horizon is not so far as we can see, but as far as we can imagine

Clarifying The Dow Drop And Its Consequences

Some folks seem to misunderstand what I wrote (which indicates I wasn’t clear enough.)  I do not know if the huge drop was a message, it certainly may have been.  But whether it was deliberate or not, it indicates that the big money CAN crash the market whenever it wants.  This is a sharper demonstration of what the 2008 crisis showed—that the hot money can crash the markets and the economy any time it wants.

The lesson of 2008, as understood by political elites, was that this hot money MUST be appeased.  The money wants high, risk free returns, and if it doesn’t get them, it will make everyone hurt.  This is why, instead of taxing the rich, which is where the money is and which has essentially no economic costs (a 20% tax on purchases of luxury goods or services over 1.5 million would have essentially zero cost to the real economy) what is happening instead is talk of slashing entitlements, or in edge economies like Greece, austerity.  (Britain will soon be getting cuts at their national level  and States and Cities have already had cuts in the US.)

Instead of appeasement, the 2008 crisis offered an opportunity to break the rich, by forcing them to recognize their losses, by refusing to bail out the financial institutions so that shareholders AND bondholders got smashed.  At the same time, to reduce the effect on the real economy, either the FED could have loaned directly to businesses and consumers or the FDIC could have taken over major banks which were dead, like Citigroup, and pushed out Fed money through the newly nationalized banks.

The end result would have been the power and wealth of the rich broken, and the real economy in not much worse shape, but able to recover much better, since the recovery wouldn’t be hobbled by the need to prop up insolvent banks, by crippled lending by effectively insolvent banks and by the need to provide above market returns to banks and the hot money rich.

This is explicitly what I was proposing in 2008, but of course, it didn’t happen.  So, instead, we get a decade of suck, if we’re lucky, the EU gets multiple failed economies and austerity plans, and the rich get 80%+ of the profits of the coming economic cycle.  If we’re unlucky (or maybe if we’re lucky) it crashes out sometime before then, since it is teetering on the edge.

Here is the basic thing you need to understand:

You can have lots of rich people, or you can have widespread prosperity.  You cannot have both.


Off for a bit


Goldman Sachs made money trading every single day last quarter


  1. S Brennan

    “You can have lots of rich people, or you can have widespread prosperity. You cannot have both.”

    Agreed Ian,

    FDR saved the rich and they were too greedy/stupid to recognize it. America, the world, had 30 years of prosperity, those who understood the miracle of government regulation of labor practices, finance, commodities, communication died off and economists/ideologues/politicians Friedman Inc. were off to the races re-creating the 19th century economics, that brought so much misery and wars to the world.

    having been forced to watch the oil shock of the 1970’s turned into a propaganda tool to reassert the failed policies of pre-FDR has been a very painful life experience.

    And I want to make clear, older people were very vocal in opposition, but the “creative class” with EXACTLY the same demographics of Obama’s white supporters, said NO, we’re certain…this time it’ll work and they brushed aside the concerns of [at the time] 60+ years old people. People were denigrated based on age and those who supportive of old timers concerns were “Luddites”.

  2. anonymous

    Clarifying The Dow Drop And It’s Consequences

    “It is Consequences”

  3. Some folks seem to misunderstand what I wrote (which indicates I wasn’t clear enough.) I do not know if the huge drop was a message, it certainly may have been. But whether it was deliberate or not, it indicates that the big money CAN crash the market whenever it wants.

    I fear I may not have been clear in my post if you think I misunderstood you. I got it completely, and don’t know myself if it was deliberate or not. Thumb on the scale? Who knows?

    This could have been fixed. It won’t be. So a select few will win, the rest of us? The boot is on our neck.

  4. anonymous

    Hmm. I hadn’t thought of it that way. Good point. For the last 15 years, and especially the last 9, and extra especially since the “credit crunch” started 3 years ago, I have been waiting for the various asset bubbles to burst and a good dose of reality to set in with a “hard landing”.

    Now I see there can’t be a hard landing because the monied elite must have a soft landing no matter what. Ever since Thursday afternoon, I’ve taken the idea of the plunge protection team a lot more seriously. It really isn’t a crisis at all for them. Even if the nominal value of their holdings decreases, they will end up owning a bigger portion of the pie (and then they’ll get capital loss tax deductions if whenever they sell any of their bits of pie to each other).

  5. Hmm… Blue Lyon quotes me, and I quoted this: “The lesson taken by the elites from the crisis was that the rich must be appeased at all costs, because if they aren’t, they will go on strike, and crash the world economy. ” That certainly sounds like “deliberate” to me.

  6. I find amusing that someone (brennan above) would cite Franklin Delano Roosevelt as an example of sensible leadership.

    Yes, it reminds me of the SCOTUS telling us in Bush v Gore who deserved the White House.

    I’d enjoy reading how one of the wealthiest POTUSes we’ve had in America somehow was a friend of the common man. Please leave myth, romantic fond remembrance, partisan pride, and general Donkey worship out of the proofs, please.

    If for some reason I’ve misunderstood brennan’s motive and missed that the aim of brennan’s comment was sarcasm, then I retract all of what I just said. As a sarcastic comment, brennan’s might just be a winner.

  7. par4

    Don’t you mean you can have some rich people… but you can’t have both? I think a tax rate to bring about a Gini coefficient of 2.5 to 2.8 with 96% employment would make a more democratic economy.

  8. S Brennan

    Uhmm…OXROT…outside of being a troll, your comments reflect the ranting of an historical idiot. But we have a lot of those today concerning FDR, as 80% of those now alive have come into being since FDR’s demise.


    “Franklin Roosevelt, is credited with defeating the Depression and then the Axis Powers, this while he was opposed by the American Nazi Party and their aligned businessmen in the Republican party, such as the Prescott’s and Bush’s who aided the Nazi’s throughout the war and later turned into anti-communist zealots to distract from their pre-war & war activities on the behalf of Nazism”

    “I find amusing that someone (brennan above) would cite Franklin Delano Roosevelt as an example of sensible leadership. ” – OXROT


    1] Reagan cast his first four presidential ballots for FDR

    2] The Republican president and Congress elected in 1952, the first such confluence of GOP power in 20 years, never made any serious attempt to scale back the New Deal.

    3] Eisenhower praised FDR and condemned the Republican press for interfering in matters of which they knew nothing. Both were affable men and Ike and FDR worked closely together.

    4] Eisenhower, Nixon & Ford praised FDR for handling the Depression & WWII, only the Bush dynasty has withheld praise…which makes sense since they were rooting for the Nazis

    On the subject of FDR being a laughable man consider your ignorance at length below OXROT:

    “FDR, More than any president before or since, he was uniquely able to select outstanding military leaders and give them sufficient discretion to do their jobs. Leahy, Marshall, King, and Arnold made a cohesive team at the highest level, and they handled their individual service responsibilities superbly. In the Pacific, Roosevelt turned to MacArthur over War Department objections, and he named Nimitz to command the fleet despite the lukewarm enthusiasm of more senior admirals. Eisenhower ranked 252nd on the Army list when Marshall chose him to head the North African invasion, and he was still well down when FDR tapped him as supreme commander.”

    That’s not to say FDR couldn’t be an idiot, in 1936 he listened to Republicans on economic matters, his most notable blunder was the catastrophic slashing of federal spending in 1937. As history has proven, the Nazi arm of the Republican party which you represent in your posting Oxrot, ALWAYS GETS IT WRONG when it comes to economic matters.

    Moving on;

    “how one of the wealthiest POTUSes we’ve had in America somehow was a friend of the common man.” – OXROT

    A common read herring trotted out the the feeble minded and their minions. Yes OXROT, the rich wrote the rule; only the poorest of the poor may represent the poor… that way they will be never be represented. Only an moron would buy such a construct.

    When I was growing up many small shops, groceries, gas stations and homes had a picture of FDR hanging on the wall…i never saw one in the home of the middle or upper class be they Republican or Democrat. Your claim to speak for all the down trodden on this matter is what is truly laughable.

    Ian, you’ve got trolls.

    In short you are not only troll OXROT, but a very stupid one at that.

  9. malcontent

    Remember Sergey Aleynikov? He was arrested for stealing some code from Goldman Sachs before leaving his tenure as a programmer there. He was considered a national security threat with his knowledge of quantum trading systems.

    From (original is gone from Rueters)

    “because of the way this software interfaces with the various markets and exchanges, the bank has warned it could be used to “manipulate markets in unfair ways.”

    Hmm. Maybe he has something to add to the analysis of this anomaly.

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