Friday, March 20, 2009

No more bull market, and no more excuses for cheerleading it...

Yesterday, the Toronto Star decided to run a column by Richard Cohen of the Washington Post. In it, Cohen objected to Jon Stewart's take-down of Jim Cramer. Mr. Cohen, apparently, has concluded that since the CEOs of companies like AIG and Lehman Brothers lost money of their own in the wreck, that nobody could have predicted the disaster.

Well, I have a link right here, to a blog post by a professor of ethics at John's Hopkins University, dated March 2007, just about exactly two years ago. In it, she looks at the subprime meltdown, and concludes, among other things:
Moreover, the whole business of collateralized debt obligations and similar financial instruments looks likely to contract in a pretty major way. If this spills over into the general credit market, as Nouriel Roubini argues that it will, we will have a credit crunch.
If an ordinary, educated observer with only the background in economics that most educated people with an interest in current affairs have, could write something like that in 2007, just what did the supposed legions of analysts and others at CNBC, and in the business press generally, do with their time between 2007 and the fall of 2008? The bloggers at Obsidian Wings did not have some unique insight; a lot of us looked at the numbers for the fundamentals of the American economy and found them worrying.

Mr. Cohen points out that the captains of this industry suffered personal losses, and suggests that this somehow justifies the failure of the business press to dig into the unfolding mess. Let us leave aside that when corporate leaders sell their stocks just before a crash, the government starts investigating concerns about trading on inside information and subpoenas, trials, and prison sentences often follow. Details such as that obscure the big picture: the leaders of the financial community obviously deceived themselves about the risks they took. That doesn't excuse the business press. They don't work for the CEOs, who have research staffs of their own. The business press works, or should work, primarily for the small investor.

I have no doubt Mr. Cohen actually knows this, but I'll say it anyway: a CEO with a (paper) net worth of two billion dollars can live more comfortably then 99.99% of the world's population after losing 1.9 billion. On the other hand, someone with their kid's college fund in the market who loses fifty thousand dollars has suffered a major reverse. So the business press has a more immediate and pressing moral obligation to the millions of small investors than they do to the few big-time gamblers.

And Jon Stewart spoke for these small investors.He spoke for the people who believed that their modest dreams, of educating their kids, of a good life in retirement, would also help fund the economy, and who got a rude shock when the markets collapsed, and a casino they had never heard of took all their money. Mr. Cohen should listen.

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