The wizards of Wall Street are no wizards

During our recent cruise, we at least got grainy MSNBC satellite TV. When I watched it, I watched the stock market yo-yo back and forth pretty much every day: the DJIA down a thousand one day, and it would often recover it the next day. The general trend though was down, a lot.

In a way, it was good to be on one of the last cruises because I was mostly insulated from this madness unless I sought it out. (Our cruise turned out fine. No passengers developed COVID-19 symptoms, but berthing in Fort Lauderdale we learned that the half dozen ships in port weren’t going anywhere for a month. I felt sorry for the staff, many of who were likely facing unemployment and a one-way ticket home.)

Today though takes the cake, with the DJIA having its worst day since the crash of 1987, down more than 3000 points in just one day. It all feels so predictable by now. I’m just wondering why the wizards of Wall Street are so late to this party. All the signs were there for those with clear eyes. I’m no Wall Street wizard, but I saw it coming. And I took some steps before the crash to mitigate our risk.

Today’s crash was because Wall Street suddenly discovered that the Federal Reserve had essentially used up all its ammunition, which means in effect that there is no steady hand on our financial system anymore. On Sunday, it dropped the Federal Funds Rate to 0%. Soon predictably it will probably go negative, charging banks to temporarily give them money to insulate them from even graver financial calamity. It probably won’t calm markets.

These same wizards of course were cheering companies that bought back their own stock with borrowed money. It gave the market a sugar rush and made stock prices worth way more than they were actually worth. Now many of these same companies, in debt to the max, are discovering the downside: they don’t have a whole lot of liquidity to ride out an economic downturn. In short, expect a lot of these companies, including some of the biggest of the blue chips, to go into bankruptcy.

The coronavirus is going to cause a recession, if not a depression. The virus though is just the trigger that revealed the larger problem, which has been sinking markets. Margins are gone. Businesses are in hoc up to their eyeballs, as are most consumers. Layoffs have already started and are inevitable. When public gatherings of fifty or more are not allowed, restaurants and many public-facing businesses like theaters close down for the interim. This takes money out of the economy and with predictable results. People living on the margins won’t be able to pay rent, or afford to see a doctor, and there are plenty of them thanks to a gig economy that Wall Street just loved but which added immensely to our overall financial fragility.

Stock market declines show that people are sobering up. Donald Trump of course is making things much, much worse by his lack of leadership and counterproductive strategies. He’s also making it worse for himself by continuing to shake hands with people. Most of his supporters still haven’t figured out what a fraud the guy is and are doing really stupid stuff like licking toilet seats to “prove” coronavirus is a myth. Sadly, it is likely that in a few weeks they need to only go to their local hospital’s morgue to see how wrong they are, if they are not victims themselves.

Children are out of school, day care centers will probably just pass on the virus, so parents predictably will stay home with their kids and fret. For many of them, this will collapse their house of cards. Social distancing should help reduce the number of cases, but it’s likely that there will be far more patients in need of critical care than our hospitals can handle. Our wonderful private health care system will prove unable to handle the coming crush of cases, which will kill lots of people needlessly as well as probably feed a mostly downward economic spiral.

It’s Republican government that will prove bankrupt once again, as it did in 2008, in 1987 and of course during the Great Depression. We never learn. The fall in the stock market proves these stocks were wildly overvalued and did not factor in the risks that are now obviously manifest. Having come off a cruise ship on Saturday and now home, I got to experience it first hand at our local supermarket where the meat counter and frozen food aisles were mostly empty. So far people seem to be soldiering on, but there is the pervasive undercurrent of social disorder. Things could get ugly not just medically, but civilly. We may be seeing the partial collapse of civilized behavior.

So we’re doing what we did before: hunkering down. We can’t count on our medical establishment, so we have to look out for ourselves. We wash our hands regularly. We take calculated risks going to the store. We wipe surfaces. We reflexively do social distancing. We also try to handle things soberly, mindful of the risks but realizing that we’ll likely survive this; it’s not really the big one. Lots of people won’t though, mostly the elderly and infirmed, and we are approaching our elderly years.

We can’t stop all pandemics and likely we could not stop this one either. But it could have been managed much better. Similarly, the collapse on Wall Street was entirely predictable. We just chose not to keep in place the regulations we needed to cushion this fall. And in search of short-term profits we refused to provide sick leave for workers, raise wages, invest in our public health or do the sensible stuff that government is supposed to do. It’s all so pointless and unnecessary.

We can control only what we can control. We can hunker down. Our pensions should provide a steady income in good times and bad. Moving to bonds at peak market insulated our losses. We are fortunate. We will also likely thrive in this challenging time because we didn’t do the stupid stuff. Unlike Wall Street, we acted logically as best we could best on a sober assessment of the world as it actually is. It was smart of us to do it, but it didn’t have to be this way for the rest of us. As a society we chose to ignore the obvious risks right in front of us.

The Republican unraveling

The Senate’s rejection of a “skinny repeal” of the Affordable Care Act last night was a bit of a surprise, but certainly symptomatic of a Republican Party in free fall. It was really a roll of the dice and could have easily gone either way but either way would have been bad for Republicans.

Senator John McCain (R-AZ) certainly found a great time to go “mavericky”. Perhaps his brain cancer diagnosis gave him an opportunity to vote his conscience for a change and cement something of a legacy. McCain got most of the attention but Susan Collins (R-ME) and Lisa Murkowski (R-AK) also bucked considerable party pressure in voting against this bill. In any event it was clear that many Republican senators weren’t actually in favor of the “skinny repeal” bill. Many voted for it only on the condition that the House moves it to a conference committee and create something else. The bill’s failure appears to be a harbinger that the leadership’s ability to ram legislation through by bypassing its committees is nearing an end.

The White House hasn’t gotten the lesson. As usual seems to be doubling down on the stupid. This has the effect of making the White House even more chaotic and paralyzed. It’s like Trump wants to do everything wrong and in the worst possible way. In my last post I advised Americans to buckle their seat belts because the turbulence would only get worse. It has, and dramatically so. I often feel like we are living in a parallel universe because our politics is so chaotic and disordered that it is hard to believe it’s real. The only question is what parts of the aircraft fail first and whether the nation can make something of a safe landing. Consider:

  • On Wednesday Trump tweeted that transgender people will no longer be allowed to serve in the military. He said this decision was made after consulting with his generals, which appears to be a lie. He certainly didn’t consult with his Defense secretary, who was blindsided. It’s unclear if this tweet will become policy. But it has caused a hell of a ruckus, with prominent Republicans coming out against it. It’s not hard to figure out why Trump did this. He’s creating distractions and trying to excite his base, which is only excited when he does hateful things to groups they dislike. Trump says this decision will save money and improve our military. But if carried out it would remove tens of thousands of transgender people from the military who are serving honorably and who the nation has already invested considerable time and money. So aside from the blatant discrimination it makes our military less ready and less ready.
  • New White House communications director Anthony Scaramucci is busy trying to act nastier than Donald Trump, if that’s possible. In his amazing, profanity-laden interview with The New Yorker, Scaramucci called the man who is supposedly his boss, Chief of Staff Reince Priebus, a “fucking paranoid schizophrenic” and suggested Priebus was a leaker. He said of White House adviser Steve Bannon: “I’m not Steve Bannon, I’m not trying to suck my own cock.” He says he plans to fire everyone on the White House communications staff. Oh, and he wants to kill all White House leakers.
  • Trump continues trying to figure out a relatively benign way to fire his earliest and biggest supporter, Attorney General Jeff Sessions, which he hopes can be done indirectly through his voluntary resignation. So far he hasn’t found the courage to fire him outright. Trump is very upset that Sessions recused himself from the Russian investigation, figuring it was Sessions’ duty to make it go away because of loyalty. He either doesn’t know that the Attorney General is supposed to be independent so the law can be enforced impartially or simply doesn’t care. In any event his true target is Sessions’ deputy, the only person who can fire Special Counsel Mueller. Trump needs a new sycophant Attorney General who will fire Sessions’ deputy, which Sessions can’t do because he’s recused himself. If he can then he has to hope to have the acting deputy fire Mueller. All this is greatly alarming Republicans in Congress because Sessions is seen by them as an excellent conservative hitting all the issues they care about. The chairman of the Senate Judiciary Committee, Senator Chuck Grassley (R-IA), has already said that he won’t hold any hearings for a replacement if Sessions is fired. Senator Lindsay Graham (R-SC) also announced that if Sessions is fired he would pursue legislation to prohibit Trump from firing Mueller.
  • John McCain’s call for the return of regular order in the Senate received applause from senators on both sides, who have had enough of their leadership disempowering them. A revolt against their leadership is likely brewing.

Trump and Republican leaders in Congress have squandered their political capital. Trump feels the need to shake things up and bring in an ever purer, nastier and more loyal staff. He can’t compromise because he sees that as losing face. He’s certain that the way he has always done things will work in a republican system of government that requires compromise.

Feeling the pressure to get things done, both House Speaker Ryan and Senate Majority Leader McConnell are using insular and high-risk strategies to push through legislation that apparently is only supported by the slimmest of partisan majorities. Their system is breaking down, particularly in the Senate. Senators are immune from gerrymandering because the citizens of each state directly elect them. So the Senate is going to be more moderate than the House, and it’s this way be design, at least since the passage of the 17th Amendment in 1913. In short, the institutional pressures and the simple desire for legislators to retain their seats are slowly overriding blind partisanship. We saw it yesterday in the votes of senators McCain, Collins and Murkowski.

Moreover, the executive branch is dissembling. The good news is that we have a competent Secretary of Defense, but it’s unclear if he can trump over a maniacal Donald Trump in a national security crisis. We also have a pissed off Secretary of State reputedly thinking of resigning and whose department is so understaffed that it is pretty much ineffective. We have branches of the executive at war with each other. And we have a president without the political skills to bring order to the mess he created and actually govern. In fact, we have a president that thinks not governing is governing. Thus it’s no surprise that there is massive dysfunction.

Look behind the scenes and it’s clear that institutional forces are marshaling, more significantly on the Republican side. Republicans are beginning to realize that they are better off without Trump. Fortunately, Trump gives them plenty of ammunition. Trump’s narcissism and cognitive dissonance will require him to become crazier and more erratic, which will feed the process. Ultimately, Republicans are going to war with each other, which should eventually render clear boundaries between traditional Republicans and Trump supporters. (Hint: the patriotic ones will eventually be seen as the traditional Republicans.) It’s all unnecessary if Trump would more toward political accommodation and begin governing rationally. It’s clear that he is incapable of doing so.