Webster’s Dictionary offers the following definition for a ticking time bomb: an explosive device connected to a timer that will set it off at a given moment; any potentially destructive state of affairs. I believe that this is an accurate definition for the current state of Wall Street. Despite last week’s “sucker’s rally,” there can be little doubt as to the fragility of The Street in the wake of the raging Global Economic Crisis.
Since the onset of the global financial and economic crisis, there have been a number of these fool’s rallies on the stock markets of the world, led by Wall Street. These rallies have not been based on market fundamentals, but rather largely on the political prowess of Wall Street in its ability to intimidate decision-makers in Washington, compelling them to cobble up whatever stratospheric amounts of money have been demanded by them to “repair” the financial system.
Back in October, former Goldman Sachs chairman and then current U.S. Treasury Secretary Hank Paulson warned Capital Hill that unless Congress immediately allocated $700 billion to bailout Wall Street, the entire global economy would collapse, literally within hours. Congress, however, voted down Paulsen’s TARP boondoggle. In response, The Street mobilized its lobbyists, and pressured Congress into “reconsideration” of its vote. Congress conducted another TARP vote, and Wall Street got its $700 billion bailout. However, the rally from the initial losses incurred by rejection of TARP was short-lived and shallow. That has also been the pattern with similar rallies as the Global Economic Crisis has accelerated in its devastating impact.
The most recent sucker’s rally that elevated the Dow Jones from its depressing lows was sparked in large part by “leaked” memos from the CEOs of Citigroup and Bank of America, claiming that these insolvent institutions, only still in existence due to massive infusions of taxpayers bailout money, had actually returned to profitability in the first two months of 2009! It seems some creative bookkeeping went into that calculation.
The facts remain unalterable; American and global macroeconomic data points to massive demand destruction, rapidly rising rates of unemployment and the collapse of world trade. Enron-style accounting can only postpone the inevitable, not stop it. Since the Dow Jones hit its peak in October 2007 of just over 14160, it has lost approximately 50% of its value. This collapse in equity prices mirrors the Dow Jones contraction experienced during the Great Depression. However, with much worse economic data likely to emerge over the next several months from all corners of the globe, further massive losses on Wall Street are not only likely; they are a metaphysical certainty.
Wall Street has perpetuated a myth that it is a manifestation of market rationality, rather than a man-made construction infused with irrational exuberance, Machiavellian greed and outright manipulation. Despite all the bailouts Wall Street has secured for itself, at the expense of intergenerational debt that will burden the American taxpayers far into the future, it is heading into the abyss. Wall Street is indeed a ticking time bomb, set to detonate with full destructive yield. Don’t expect Timothy Geithner or a thousand leaked memos from American CEOs to disarm this financial time bomb.
global economic crisis