Tags: Coronavirus | Financial Markets | Money | margin | pump and dump | internet | overpriced

Insane Times Mean Drastic Measures for Nation's Money

emergency measures for american money

(Nerthuz/Dreamstime)

By Friday, 13 March 2020 12:14 PM Current | Bio | Archive

It’s time to re-examine our whole view of life. A few things have happened recently that cast our whole understanding of cause and effect in doubt.

They are clustered together and they have to do with the Coronavirus.

Here we all were in this great country rushing forward with our lives, laughing and scratching and planning for a glorious future for those of us smart enough to have invested in the stock market.

After all, with a very few exceptions, the stock market has been the best place to put our hard earned savings for at least 80 years — with a few speed bumps along the way.

And if there were some rough patches there was usually some warning.

The crash of 1929, which led us into the worst Depression in history, was preceded by some of the worst, most reckless and dishonest means of investing and speculation there has ever been.

It was common practice for "pools" of speculators to band together to buy a stock and move up the price by the imbalance of buying and selling.

These people would also pay off radio and newspaper commentators to praise the stock so that the rubes in small town America would flock to the stock and drive its price up still further.

At this point in American investing there was also such a thing as borrowing a very large portion of the stock price on what is called "margin."

A small, not particularly rich buyer could buy $10,000 worth of a stock putting down only $1,000 in cash and borrowing the rest from his stock broker or his bank.

The stock was the collateral for the loan.

Then the pools, on a preassigned schedule, would dump the stock ( hence the still common phrase "pump and dump").

The pools would reap huge gains. The investors who were not part of the pools would be hurt badly. Their collateral would fail and they would suffer badly.

Insider trading was commonplace and every kind of fraud was standard.

Fake bonds were peddled to small town banks and–of course–soon defaulted. The results were disastrous.

Banks failed throughout the nation as collateral–especially agricultural commodities–fell fantastically in value. By 1931, more than a third of all banks in America had failed. When they did, their depositors panicked ( like people are panicking now ) and lined up to get their money back. Often they were left empty handed and wound up broke.

(A horrible feeling.)

FDR brought things right but not completely right by the expedient of Federal Deposit Insurance which guaranteed that depositors’ money was safe no matter what happened to the banks’ collateral. Many, many other plans were put into action and little by little the Great Depression, brought about largely by bank failures, got better although it was not completely right until Pearl Harbor, when the full resources of the nation were mobilized.

Now, it’s been close to 80 years since we had a really bad correction although we have had many recessions and a truly harrowing series of stock market crashes.

The common denominator of all of them was some sort of financial crisis — wildly overpriced internet stocks, a real bank crisis in 2008.

But the current catastrophe is unique in several ways:

— It virtually came from outer space. It was like a meteor that travel millions of miles through the void and then strikes the earth with the force of a thousand hydrogen bombs. Only this one is even worse because we would have some warning about a meteor collision. This Co-Vid 19 crash just came out of some town in China that probably only one in a thousand Americans had even heard of and grew at a phenomenal pace across the globe. It was a disaster from an unknown hell.

— This crisis is extremely unusual in that it has happened without any corresponding financial or bank weakness. This country has the best capitalized, strongest banks in the world with zero liquidity problems and full government backing.
For the markets to collapse in that situation is rare indeed.
Unique, once again.

 — It is hard to see where the national sense of panic came from. This is a nation of roughly 340 million souls. So far, only a few thousand are clearly infected with Co-Vid 19. So far the number of fatalities is mercifully small. This virus pales in comparison with the vicious, widespread Swine Flu epidemic of 2009-2010. That cruel disease was far more lethal and widespread than Corona. But it did not cause panic or a financial crisis. We were already having severe economic problems in 2008 but they were not caused by the Swine Flu.

Why are we having an authentic catastrophe now with a virus that is spreading rapidly but has nothing like the lethality of the Swine Flu?

—Why are Americans hoarding toilet paper?

Diarrhea is not a symptom of Co-Vid 19?
I have to come to the violently upsetting conclusion that this is a crisis whipped up by the media to hurt Trump.

If Obama were still President, would the Internet be ablaze with rumors and innuendo blaming the White House for the virus, which is like blaming him for nightfall or the magnetic fields at the north and south poles?

In the meantime, many of us are suffering terribly.

The best suggestion I have heard for righting this ship comes from a stock market commentator named Jim Cramer (CNBC): for the next few months simply stop collecting taxes.

Have the Federal Reserve and the Treasury just print the money the government needs.

It's a drastic measure, even an insane measure, but these are insane times.

Ben Stein is a writer, an actor, and a lawyer who served as a speechwriter in the Nixon administration as the Watergate scandal unfolded. He began his unlikely road to stardom when director John Hughes as the numbingly dull economics teacher in the urban comedy, "Ferris Bueller's Day Off." Read more more reports from Ben Stein — Click Here Now.

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BenStein
Have the Federal Reserve and the Treasury just print the money the government needs. It is a drastic measure, even an insane measure, but these are insane times.
margin, pump and dump, internet, overpriced
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2020-14-13
Friday, 13 March 2020 12:14 PM
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