A Theory on the Crisis
The stock market is tanking. I’m not an economist, so I probably don’t know what I’m talking about, but here’s my theory why:
Demand for stocks is down because people are unsure about what’s going to happen. Since there aren’t as many buyers as there used to be, price is going down. Part of the uncertainty is that the Government keeps churning out new plans and proposals. Everyone wants to see how this will all play out before they make their investment decisions. To stabilize the markets, we need some Government certainty. That means the Government should say something like “we are going to do x, and no more than x.” When the Government signaled that it wouldn’t save Lehman, people thought the Government had done this, and the markets started to stabilize. Then the Government broke it’s word and started trying to save everything under the sun. Between incoherence from the Bush administration and the uncertainty of the election, investors are justifiably freaked. At this point, it matters less what the Government is going to do and more that the Government let investors know precisely what it is going to do.
My other theory is that markets don’t like socialism, and the measures that have been put in place to deal with the crisis have largely been socialist. Markets rely upon competition, and when the government props up failing competitors, money stops chasing the successful and doesn’t know where to go.
