I get the sense you’re thinking too much about big NEw York companies.
Obviously the economy isn’t going to collapse from a two week hold. But we’re not talking about total collapse from two weeks of layoff, we’re talking about a few months. At that point, in fact most small businesses are dead.
The unemployment rate in 2009 topped out a shade under ten percent in the USA. This crisis could push it way, way past that.
The difference between 2008-2009 and today is that 2008-2009 was primarily an economic problem. This is a non-economic problem that is affecting the economy.
I am not going to resume my former activities until things are safer. Some guy in NOLA DJs at a club, contracts COVID-19, now dead. Not really worth it, it seems. Same as with the things I do. Not worth it for me to go play pub trivia, contract COVID-19, go to the ICU, get permanent damage possibly.
You could keep everything open and business would still be way, way, down. Look at the airlines.
We need to, as societies, make things safe again as much as we are able. I’m not going to resume those activities until we do so. You can tax me more to help the people affected, as long as I am employed that is fine. I’m not going to go and do those things, I would rather be taxed and stay home.
The problem in 2009 was not a fundamental economic problem. It was a problem with money. But again, that’s not what economies are about. In 2009, goods and services still existed; it was just a question of how to exchange them. That’s what McCain meant when he said that “the fundamentals of the economy were strong”: People were still producing goods and providing services.
Now, though, we do have a fundamental problem, because those goods and services are currently not being produced. You can’t address questions about how to exchange them until they exist. You can’t even start to fix things until people are back at work. And that’s only when you start fixing them. Then you still have all the same sorts of non-fundamental problems we had in 2008, and you have to fix those.
If our economy can’t stand the effects of this epidemic then that is an indication that it needs to be ‘destroyed’, i.e. replaced with something more robust and in which a moderate hiatus in non-essential services does not result in a crippling recession because the next global pandemic is likely to be worse. And if this puts a bunch of investment bankers and options traders out of work, well, we have an enormous need for carpenters, plumbers, electricians, millwrights, roofers, mechanics, and other tradespeople who produce actual value through their labor instead of multiplying Monopoly money by bullshitting each other.
As an aside, why are trading markets still open right now? Is there something essential about the stock market that it needs to function in chaotic, barely regulated fashion during a national emergency while companies and small businesses are uncertain about when and how they will be able to conduct business?
Stranger
Do you think people who need money for present emergencies shouldn’t be able to liquidate their assets right now?
If you think they should be able to get cash, then most of the other rationales for a functioning market immediately follow.
The markets are open because to the moneyed elite that IS the economy–they’re fully through the looking glass and think the reflection is the actual thing. Closing down the stock market means THEY won’t be making money during the pandemic, and while that’s just fine for hoi polloi and peasants it simply Will Not Do for the money class to have to go without their daily fix of gambling with other people’s lives and livelihoods. Hence them being frantic to get us all BACK TO WORK PEASANTS regardless of the death toll in order to facilitate their imaginary game–why they can’t just play video games like ordinary losers I just don’t know.
Yeah, the trading going on in the stock market right now has nothing to do with “need[ing] money for present emergencies”, and the amount of speculation based upon misinformation and misdirection is causing the market to oscillate in such radical, unprecedented ways that ordinary investors—most of whom are invested in mutual funds and index funds for which many are dependent as their source of retirement income—are legitimately fearful for their future, while options traders and major corporations are looking for a chance to buy back their own stock for pennies on the dollar. Meanwhile, the people most in need of immediate help—those who are homeless, are being evicted, are having their utilities shut off, or can barely pay for groceries on a good day—are literally getting “a dollar late and a day short” in terms of their needs to deal with the present emergency.
A market for public investment in capital is a necessary and valuable part of our economy, and robust trading exchanges are an inherent part of why the United States was able to grow as an economic superpower (I mean, aside from being the only major industrial power that wasn’t bombed to rubble in WWII). Letting markets run wild in a time of unpredicented crisis is not necessary, or smart, or healthy for the economy.
Stranger
Cite that the goods and services are not being produced? Here’s a cite that says they are:
And so it begins: Washington Post: “ Senate aid package quietly carves out billions intended for Boeing, officials say”
Taking advantage of a public health crisis to line your pockets, eh?
Stranger
Chickens are going to keep laying, dairy cows are going to keep producing milk, and farmers will plant and grow grain (where their fields aren’t being submerged by climate change-induced flooding or bankruptcy due to Trump’s “trade war” with China). A lot of service jobs and hospitality businesses like restaurants and hotels have and will continue to be negatively impacted, which is why there is a need for subsidy and debt relief now, and a program to build up jobs in critical industries in the near term (and by “jobs” I mean real full-time employment, not “gigs” like driving for Uber at a net below-minimum-wage rate) so we don’t lose critical infrastructure. The biggest danger to the economy are the people trying to speculate upon it rather than produce anything of actual value or service.
Stranger
Liquidity for those as need it has everything to do with keeping markets open. Everything. Not “nothing”.
There are people who need money right now, and some of them are selling right now because they need money. These people exist, as I hope you would not deny. They need buyers on the other side of their transactions, as I hope you would not deny. They have assets, and they need someone with cash to buy their assets. We’re not talking about “nothing to do” here, which is kneejerk hyperbole, probably born from understandable frustration with the general situation. (You’re generally smarter than this.) The percentage of people making these trades is not 0%. It is >0%. Not much greater, but that is essentially always the case.
The stock traded in the market comes into existence with corporations selling directly to buyers to raise funds. But most trading is not corporations selling stock. Most trading is the secondary market of people buying and selling it to each other. Corporate sales are close to 0% of trades, but not literally 0%.
During normal times, corporations have greater liquidity in their sales, an easier time of raising money, and more information about how much they are likely to raise if they need to go back to the market for more, precisely because ~99.9% of trades do not involve them at all. The majority of trading serves the purposes of the small minority. This is completely normal. It’s not some unusual thing. The moment we acknowledge that some small fraction of the market has liquidity needs – as you seem to be outright denying, with your “nothing to do” nonsense – then we acknowledge the need for the market to remain open.
And when it’s open, people will trade.
The market is oscillating wildly because no one has a clear idea of how many people are going to die, and how much damage that’s going to cause. I’ve seen estimates from tens of thousands, to literally millions of deaths, within the United States alone.
Nobody has got the slightest fucking clue what these corporations should be worth.
It would be unreasonable if the price weren’t oscillating wildly. The price should look like a rabbit on speed. The volatility is itself a signal of the deep and pervading ignorance of the current situation.
But some people still need to sell.
And they still need buyers on the other side of their transactions. Which means: they need the markets to be open. But according to you? “Why are trading markets still open right now?”
Because people who need to sell require buyers despite the fact that we have no clear idea what the price should be. There needs to be a market for them to sell their assets so that they can get the cash they need, despite the deep and pervading uncertainty about what that price should be. So yes, the price in that market is going to swing wildly. And yes, as soon as we acknowledge that this market should exist – that there are people with assets who need cash – then the existence of that market immediately implies that most of the transactions in the market are going to be for other purposes. You’re acting like that is some unusual thing, but again, this is completely normal. We would ordinarily hope that regular trading involves some sort of “wisdom of crowds”, aggregation of disparate information situation, but that’s not necessarily going to happen all that well when no one has any idea what’s going on.
But people still need to sell. And they still need buyers on the other side of the transaction. And even if our normal mechanism for trying to aggregate info is bad, it remains the least bad mechanism in existence, even during the current shitshow.
People should be fearful for the future.
My wife and I started preparing for this in January. My mother-in-law refused to sell despite the warnings of my wife (who is also an economist). Other people who knew epidemiology were warning about the health aspects of this in January. But as it turns out, people don’t always listen to experts.
Fancy that.
Did you knew there were people who go into physics threads who try to deny relativity without knowing the math?
If those corporations end up going bankrupt, then that’s not “pennies on the dollar”. The people selling would in fact be getting a good deal by getting something out of transaction, instead of getting nothing after the bankruptcy.
If it’s your personal belief that these stocks are undervalued – if you have some insight into the current state of the world that others lack – then you should be buying for “pennies on the dollar” right now. And in the act of buying, you would be helping push up the price to more reasonable levels. People with genuine knowledge should be acting on their knowledge, so that everyone else gets a better idea of what’s going on. If those assets should be worth more, and if people have your superior knowledge that these assets are trading at pennies for the dollar, then people like you pushing up prices will help people with liquidity needs get a better price when they need to sell. People who trade with knowledge help inform everyone else. That’s probably not happening a lot in the present situation, but it’s still happening some. A little is better than nothing.
This is all completely true. The policy response has been terrible. But even given an adequate policy response in a better and smarter world, there would still be people with additional liquidity needs, and these people would still need markets to be open, even if their own transactions were a very small fraction of total volume.
But what you said was: “Why are trading markets open right now?”
They’re open because people with liquidity requirements need the fucking markets to be open. We don’t care, directly, about the ~99.9% of zero-sum speculative trades, except to the extent that we hope some of those trades are informative, and push the hysterical price infinitesimally closer to a reasonable figure.
We care about the small fraction of trades that legitimately matter.
Shutting down the markets completely would completely fuck over people who need cash.
If you want to talk about potential ideas that might calm the wildness of the market – a fraction of a percent transaction tax? – then I’d be interested in listening to that discussion. But you were outright questioning that the market should be open at all. That’s a much different thing.
I’m not going to respond to the piecewise dissection of the previous post, but I’ll point out that shutting down the trade exchanges during an emergency is not some kind of novel idea with no historical precedent. Offhand, I can name at least six times the exchanges were closed:
[ul]
[li]Assassination of President Lincoln in 1865[/li][li]Failure of Jay Cooke & Company bank in 1873[/li][li]During the beginning of WWI in 1914[/li][li]For the “bank holiday” declared by FDR in 1933[/li][li]The assassination of President Kennedy in 1963[/li][li]In the days follwoing the World Trade Center and Pentagon attacks in September 2001[/li][/ul]
Closing the exchanges temporarily allows for the external situation to stabilize, or at least for investors to not radically speculate purely on innuendo and prevent perfidious actors from using rumor to manipulate the market. This is done because even though there is risk in losing confidence should the government admit that there is an emergency situation, it prevents the bottom falling out completely as it did on Black Tuesday of 29 October 1929.
The people who “need money right now” are not the people who have large investments in the stock markets which they can readily liquidate. They are people living paycheck to paycheck, those on fixed incomes or living in retirement on income in a 401(k), or who have just lost their job need to make the rent/mortgage payment and still be able to eat. The speculators who are bouncing the market up and down like a gerbil in cotton candy machine aren’t scared for where their next meal is going to come from or whether they’ll be living out of their car by the weekend; they are speculating wildly to make an instant fortune based on hoping they can outsmart the effects of a public health emergency that is beyond the experience of living memory.
It’s nice that you and your wife were able to liquidate and secure your holdings. For millions of Americans who are inextricably tied into the stock market via the only unsecured retirement instruments available to them–401(k) and 403(b) plans–this kind of volatility is frightening, presenting an additional stressor while many still fear for their lives and those of their loved ones. I’m nowhere retirement so while I still have plenty of time to recover, watching the net work of my retirement funds drop by hundreds of thousands of dollars a day because “some [wealthy] people still need to sell,” doesn’t cut the mustard. It’s a fucking lame rationalization for ignoring the reality of the situation, e.g. we are facing an unprecedented public health crisis with inadequate preparation and the legendarily incompetent and corrupt “leadership” of a reality TV host-cum-President with visions of tacky grandeur that would curdle the stomachs of the Bourbons.
The reason that trade exchanges are up and running right now, rather than taking a couple weeks to assess what life is going to look like with the employment market in transition and many businesses struggling to find a way to pay their basic operating costs with little or no income, is strictly because Trump doesn’t want his “numbers” to look bad, and he feels like if he just lets it all play out that a miracle will happen, summer will come, and the virus will go away just like he promised. Except that isn’t reality, and nor is the expectation that you can let the stock market freefall and then recover economically. Trump is too stupid and too cowardly to act, and you can bet on that people like Steve Mnuchin and his ilk are using this as a time to personally enrich themselves while large corporations petition for handouts so they can buy back their on stock. And just like 2009, nobody will go to prison for the fraud, waste, and abuse to come.
Stranger
The markets, or rather the exchanges, are themselves huge businesses employing thousands of employees and enabling tens of thousands of other workers. The vast majority of trades in usual times are done electronically. In current times, the trading floors where open outcry trading takes place are closed, so it’s now 100% electronic trades. Most exchange staff are able to work from home. Some IT staff that look after the hardware will need to come in, but those are positions where interpersonal contact can be minimised to near-zero. In situations where people can work from home, they should be doing so. There’s an economic baseline being set on what the next weeks or months are going to look like. Society needs that baseline to be as high as possible while maintaining public safety. Keeping the exchanges open and operating as businesses, and enabling other finance businesses, bumps up that economic baseline.
Not when indexes are plunging like necklines at a fraternity “Little Sister” selection party, it doesn’t. As I’ve already shown, closing the exchanges temporarily to let public opinion stabilize isn’t some kind of radical pulled-directly-out-of-thin-air notion; it is the standard operating procedure when there is a sudden and unexpected social, economic, or political crisis. In this case, where we already have millions of people thrown out of work with no warning, small businesses facing indefinite closure and all the medium and large businesses that supply them in similar limbo, and projections of unavoidable deaths in the hundreds of thousands if not millions, it is obvious that trading should be suspended for at least a couple of weeks until we have might have a reasonable forecast for how long the lockdown in major cities and many states will continue to be applied. Pretending like this is all “business as normal” is farcical on its face and just invites the wealthy and well-positioned—who don’t need to liquidate their holdings immediately to have cash for basic necessities—to advantage themselves in the coming fire sale at the expense of everyone else.
Stranger
Those were mostly very short breaks, though; only the 1914 break was really long, and there was a 1968 break that lasted months and happened for administrative reasons I don’t fully recall.
FDR’s bank holiday was a week long, and that was specifically in an effort to stop a run on the banks, which isn’t happening now. I mean, the stock markets take breaks for long weekends, too. The 9/11 break was just a week at most. The JFK break was what, two days?
I don’t recall the length of the 1865 and 1873 breaks but damn, that was a totally different time. I’m not sure a comparison to a time when traders had to ride a donkey to work makes a lot of sense.
… or someone trying to keep their house. Or trying to keep a small business from going belly up.
Nobody said anything about “large investments”. Your words, not mine.
There are over three hundred million people in this country.
We’re in a crisis situation, and some fraction of those people have assets tied up in the markets, directly or indirectly, which they presently require ether for themselves or their friends or their families or their neighbors or even their communities. If they are to sell, they need buyers on the other side of the transaction. A person making an honest argument about the costs of wild market volatility would not summarily round the existence of these people down to zero for convenience. Cost-benefit analyses become trivial when one of the columns is zeroed out, but that doesn’t make it an honest calculation.
This is not the biggest item on the agenda, not anywhere close, not within orders of magnitude. But it’s bothersome how flippantly the concerns of real human beings can be hand-waved away into nothingness by the abject failure to imagine people mired in difficult situations very unlike our own. Most especially from people capable of doing much, much better.
Some goods and services are still being produced. Not all of them. Do you really need a cite that there are a lot of people who usually produce goods or services, but who aren’t right now?
Now, most of the “essential” good and services are included among those that are still being produced. Most, but not all. I can tell you personally that the essential service I provide is not being provided right now.
Nice of you to poison the well in this discussion by characterizing my statements as “flippantly…handwaved away” the “concerns of real human beings” while you argue for allowing exchange markets to wildly oscillate and put the unsecured retirement savings (which are structured this way not because investors choose those instruments but because they are the only practical mechanisms for many people to invest in) in risk of massive devaluation at the hands of speculators while making a patent argument that trading is necessary so that people can pay their bills or mortgages by cashing out stocks. In fact, the demographic of people who are at greatest risk for being foreclosed upon or evicted don’t hold any investments to cash out, which the investors who are able to exploit the market swings are those with massive holdings.
What is really needed at this time is a freeze on all default-based evictions and mortgage loan foreclosures so that people are not made homeless and destitute during the greatest public health crisis in the modern era, and that the handbrake is set on speculative trading until there is some clear path to how this crisis will play out and how the government—and governments around the world—intend to buffer their economies during the crisis. Again, this isn’t some kind of ill-informed or starry-eyed proposal; it has been the standard procedure in every sudden and unexpected national and international crisis with potentially far-reaching economic implications. That doesn’t mean shutting down markets for months; just to the point that there is some kind of plan and expectation for when businesses can reopen and rehire employees. Pretending as if markets should just run normally while people are dying outside of hospitals and tens of millions are suddenly unemployed is obscene and blatantly invites unchecked speculation and manipulation of those precious markets.
Stranger
Two weeks from when, and why two weeks? My ‘Oh Shit’ moment was on Friday (20/03/2020 for people reading this later. Also note that I live in the UK). For some people it was a few days earlier, for others it was weeks earlier. Some people haven’t yet had that moment. I can’t say that I’m substantially more informed now than I was three days ago when the markets opened on Monday. I’m not making buy/sell decisions at the moment, because I’m waiting for market clarity. But note that that’s my choice. If I strongly felt that a stock or other financial instrument that I owned or was looking at was overvalued or undervalued, I’d want the option to buy or sell that share/instrument. You’re basically saying that there’s too much market volatility, and the cause of the volatility is uncertainty. There should be a lot of volatility in the market at the moment, and some things are uncertain. However, other things are certain. There’s going to be a worldwide spike in unemployment, a severe economic reduction in CY2020 Q2, and some industrial segments such as the restaurant industry are going to be devastated. You’re saying that people who thinks that McDonald’s stock is overvalued should wait two weeks from whatever start date before they can sell it. They may know more in two weeks about MacDonald’s future prospects, or they may know about the same as they know now. But there’s no certainty on when there’s going to be a clearer picture on the restaurant industry’s future, or the future of hundreds of other business sectors, than there is now. The moment of a certain future on the Conoravirus pandemic is probably going to be only a relatively short while before the end of the pandemic. Closing the exchanges until there’s certainty in the markets will be much more than two weeks from whatever starting point you choose, and will be a brake on the economy at a time when it needs every bit of help it can get.
One further point is that the New York Stock Exchange was closed for four days after the September 11 attacks. That includes the day of September 11 when there was a devastating physical attack on New York City’s financial district. The security risk of the Coronavirus to Wall Street is much less that it was during the immediate period after the September 11 attacks. Do you think that the uncertainty risk is 150% greater? I don’t.
:smack: You seriously post something like the above today, the very day when 3.3 million US jobless claims were recorded and the number of Covid cases in the US have exceeded every country on the planet? Hell yes the uncertainty is much greater than after 9/11. I remember that week, and yes everyone was shocked as hell and there was a short period of the Pres flying around on AF1 afraid to land, but 4 days later it was certainly clear the attacks were over if not dealt with. This situation isn’t over and we have no idea at all when it will be nor how bad it will eventually get. The uncertainty is utterly beyond 9/11.