Did the government actually cause the current mess in the markets?
Despite the onslaught of media items questioning deregulation and even suggesting the end, somehow, of capitalism itself, there is an alternative view.
That is, subtract the giant government bailout, and we probably wouldn’t be staring at Dow 8,200.
"Now that deposits are guaranteed, basically I as an investor have no incentive to hold equities, so I sell them and put my money in bank deposits," Marc Faber, author of the "Gloom, Doom and Boom Report," told CNBC Monday.
"The interventions, they actually have increased volatility. It’s impossible to forecast market movements when you have interventions," Faber said.
Meanwhile, Chris Whalen at Institutional Risk Analytics points out in his latest newsletter that the price confusion is feeding back into the rescue effort, making things worse.
“Who would think the day would come where blue chip stocks would have 30-day volatilities in the 180 percent range. That's a barn door so wide you can throw a pick-up truck through it blindfolded and still come up with a valid price guesstimate. No wonder the entire stock market is having an extended nervous breakdown.”
Price no longer represents value, Whalen says, and there’s no reason to trust prices on the stock markets until the 80/20 rule is back in force, where 80 percent of stocks represent 20 percent of market volatility.
“The disruption caused by the ground rules shift is visible in all aspects of business and finance,” Whalen writes.
“Under the Treasury's TARP, for example, deserving banks can get capital infusions from 1 percent to 3 percent of risk-weighted assets. But global regulators have proven that they don't know how to really risk-weight assets, because they're using models based on the very same assumptions about price and value which are now thrown into complete confusion,” Whalen says.
“Thus the process of deciding who may or may not participate in the TARP becomes a political question because none of the data outputs make sense.”
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