Have you ever seen that episode of "Seinfeld" where everything is backwards? "Up is down, down is up." That's how I describe the current political and economic situation. It seems to me that those who should know the most about how the market works are acting like they know nothing. Democrats are saying Republican things, Republicans are saying Democrat things. I'm confused.
On Economics:
There are fundamental principles in the market, and one of them is that panic and lack of knowledge is BAD. For instance, when the mortgage "crisis" first started, Countrywide was a very solid company, despite its nay-sayers. It had substantial cash flow, strong reserves, and one of the largest portfolios in the country. Yet, it suffered a 90% drop in value because of its position in the sector. This dramatic drop was caused by panic and lack of knowledge, and it lead to Countrywide's eventual sale to Bank of America. Now this worked to my advantage because I bought Countrywide stock at its low and sold the converted BoA stock after it jumped about 60% in value. I made a good deal of money on that set of trades because I knew that Countrywide was heavily undervalued and that BoA would become a force as a result of the acquisition. But the fact remains that Countrywide never would have been in that position but for the ignorance of investors and the rampant fear mongering laid out everyday in the media. "Mortgage Crisis", "meltdown", "debacle", etc. Those are some of the terms the media used to describe the situation.
What's worse is that the panic lead to further deterioration in that market sector. If investors had said, "these companies are sound enough to weather this storm, I'm not going to sell" then we wouldn't have seen the fall of Lehman Brothers, AIG or Morgan Stanley. (Of course there are other factors that played into all of this, but I stand by my basic premise.)
Why are investment commentators so quick to jump on the "sky is falling" hysteria when they should know it isn't true? If I was an SEC investigator, I would look to see how many of those media commentators were short-selling various financial related stocks. If they entered short-sale orders immediately before or after their media appearance, I would scream "fraud" and market manipulation. (For those who don't know, short-selling is the practice of selling a stock you don't own on the bet that its price will drop. Basically, you tell a broker to place a sell order on stocks and then when the price drops, buy it at the lower price, making a hefty profit.)
On Politics:
Why are McCain and Palin calling for more regulation? I know its the popular thing to say that regulation would have saved the economy from this catastrophe, but its simply not true. In fact, regulation is contributing factor to the problem. For instance, the various government agencies responsible for oversight and rule-making for mortgage financing were
pressing mortgage companies to make riskier and riskier loans. For instance, many companies would not make sales of adjustable rate mortgages in Cleveland, Ohio. This was due to the already high foreclosure rate in fixed mortgages in that city. However, this practice, which was based solely on risk analysis, was called a potential "race problem" because Cleveland has a heavy minority population. Well guess what happened in Cleveland, (Detroit is another good example of the same principle) the foreclosure rate jumped even higher because Mortgages were being sold to people who couldn't afford them. But the agencies asked lenders to "expand" their guidelines to facilitate more minority home ownership. Well, if it happens to be true that more minorities make less money than other groups, then lending money to those lower income folks is an act that begs for foreclosures. You can't just fudge the numbers and hope it works out.
Regulation is not the answer per se - smart regulations, even there are fewer of them, is a better answer. But trusting the making of these regulations to either McCain or Obama is a fool's errand because neither of them seems to know much about economics. I mean, I'm just a simple guy with no degree in economics or finance, but I seem to know more than both of them. That doesn't make me feel good about the political-economic future of this country.
Anyway, that's my rant. It's been building for months.