You called it in your column on Oct. 3. The game is rigged. We all had a look behind the scenes and realized that there isn’t a pea under any shell.

Financial historian Niall Ferguson says this in the current issue of New York Magazine: “For 20 or 30 years, people have been trying to turn finance into a branch of applied mathematics. They’ve been trying to reduce decisions about credit and debt to equations. And what we’ve realized, belatedly, as a result of this crisis is the human factor is dominant in financial crises. That investors behave rather in the way that cattle do when the herd stampedes. The greed that made them chomp the grass suddenly turns into the fear that makes them charge for the gate. And that’s something that the mathematical models never to sufficient account of. The markets magnify the human tendency to swing wildly from euphoria to despondency. It’s not surprising really that behavioral economics is gradually taking over from mathematical finance. It perfectly matches the shift in the real world.”

This is an articulate and fancy way of saying exactly what we’ve been conjecturing for many months now: what we’ve got here is just a bunch of crazy, greedy people behaving the way we all do when we’re angry or scared or both. And there’s nothing rational or scientific about it, except perhaps in the counting of our losses.

I have a hard time understanding how anyone with their eyes wide open could have had any confidence in the stock market for the last 10 years or more. I haven’t put a cent into it for the last six, which is why I feel fairly secure. Stock market capitalism of, by, and for mega-corporations, with management responsibility divorced entirely from ownership risk has been unmasked as a con game. We’ve had too much recent history of management and their enabling directors touting the strength of their companies and encouraging suckers . . . er, investors . . . to keep the honey flowing while on the other hand cashing out their own accounts in the dogs.

No transparency = No confidence = No trust. Self-inflicted wounds. The wounds won’t heal until trust is restored; and why anybody would trust the current crop of management ever again is a complete mystery to me.

Susan Estrich had an interesting observation recently. She noted that most of the twits responsible for the current fiasco are about her age, and back when she was in school it was considered that the really smart people went on to careers in law or medicine, while entry into B-school pretty much branded you as a simpleton. Granted, this is Estrich we’re talking about; but she may have a point.

I suppose it’s the “market” (whatever or whomever that might be) realizing that the bail-out was a whole lot of nothing. It wasn’t, nor was it ever meant to be, a pancea. And that’s the whole joke of it. The bozos in WA kept telling us, “we gotta do something or the credit markets will freeze.” Well, guess what, they’re still frozen and the frost is spreading to Europe and I’m sure on to Asia next.

That’s because the bail out was just supposed to provide nothing more than psychological comfort to the “market.” It was just to provide the illusion that Congress was doing something, anything, even if it was the wrong thing. But, the $700B prozac only works so long. And now that the short-lived, drug-induced haze has worn off, we’re still in the same place we started.

That was fun.

Money * Velocity(leverage) = price * economic output.

Delevering reduces the left side of the equation (witness rapidly dropping M2 and M3). Price and economic output must therefore fall (witness commodities and unemployment).

If the financial system isn’t flowing then the price of everything must come down. It will make months maybe years to get money flowing again and then we’ll be right back where where we started making new high market highs. But in between, expect the collapse of all assets to accelerate as this is the end of the beginning not the beginning of the end.

Alan

Didn’t you make some comment in your Fortune Mag Column much earlier about the middle east buying what they haven’t already purchased for pennies on the dollar in the future?

You also called out the very key players that started this mess being the new “experts” on CNBC and so forth. Something like that.

It was funny then and while I don’t typically remember stuff like that it just scares me now.

You know how to call it…even jokingly.

I think the whole Wall Street investing in stocks, etc has always been ’shoved down our throats’ because it’s just been told what you do.

I don’t know if I have some weird insight or what, but I called the dot.com crash years before it happened and I called this mess back in 2003 (finally got written up in the Washington Post in 2006 about it a few times) and to me, my feelings have always been that Wall Street and a lot of stocks have been nothing more then elaborate pyramid schemes, etc. Like you said about Niall Ferguson, for 20 or 30 years, people have been trying to turn investing into some applied mathematics. Sounds like a scam to me. We need to ask SIMPLE questions again and have strict rules.

Look, I still think we need stocks, etc but the whole ‘investing for the long run’ has been shot out the window because the CEOS are only looking for short term gain. The game has to change for the stock market to ever come back and that means companies that look to build for long term success. All the short term gain and credit has made everything become over-priced and we really need to get things back down to realistic levels.

Faith and Trust have been lost. Those are 2 tough things to regain when most of the common folk, especially the middle class have been walked all over. Don’t look for anything to get better for years and years.

This thing has just begun and the scary part has not even started.

When hyper inflation starts due to the world dumping US currency, people in the States will feel at ease for a short time as more money becomes available, then they will soon realize their money has no value and soon they will panic as more and more currency comes home.

In the mean time, the smart money people in the US will have diversified their funds to Asia.
Where there is some stability and a future based on real value for real work.

Everybody knows China is going to be the future world leader of finance. Well think for a moment, how do you suppose this is to come about and when.

I have 2 reasons.

Humans have a memory that lasts about as long as the average football game. They thought that real estate and stocks always go up. When that reality is turned up side down people get scared and start selling.

What they should be doing is buying. I think some guy named Buffet may be doing that.

Reason number two is deep down inside I think everyone knew they and their government was living on borrowed time. Borrowed time and borrowed every thing else.

With the cost of money so cheap for so long the reality of debt was forgotten by all.

We all remember now.

Debt is bad. Our government was bad. We were bad.

Apparently you can’t spend more money than you earn forever.

Now we pay

“It is sort of starting to feel like the end of the beginning of the end and the start of a whole new cycle of pain, isn’t it.”

This too shall pass.

Just another cycle to get us back to what really is important – integrity, trust, and adding value in whatever it is we do for money. Too many folks have been selling crap and churning the deals for some big dollars.

The secret’s out – it’s all been a lot of fluff and churn – at then end of the day the market disappears.

I guess it depends on whether you believe in evolution or intelligent design/armageddon.

I remain hopeful that this is simply a right-sizing where some critters are obsoleted and others will win by doing the right thing.

…today the glass is half-full.:-) By golly – we weren’t bombed in our suburban neighborhood and most of us got a couple of good meals today. Yes it sucks but we’ll get through the ‘pain’.

Mr. Bing,

I’m not really sure what originally drew me to regularly feed your blog to my RSS Reader. There was something about your writing style that I enjoyed, I guess. It’s certainly not because I’m that knowledgeable about high finance and I have never invested in the stock market. My younger brother has that fascination, but he also likes to go to casinos occasionally and lay down a bet in hopes of getting something for nothing other than a willingness to accept some financial risk. My brother knows a lot more than me about raking in money, though I’ve noticed that he’s not that brilliant about finding happiness in his life. He seems pressured and harried mostly, with little time to stop and sample those simple joys.

So, yes, I guess it was your writing style. Your humor was infectious and I always return to places that can get a smile or a laugh from me. But your recent blog entries have had little in them to make me smile, much less laugh. I hope through all of this uncertainty and apparent chaos, you reconnect with yourself in that regard. My experience has shown me that you can lose money, jobs, family and still find a way to recover and live a meaningful life. But when you lose your sense of humor, you are pretty much done. You might as well dig your own hole, get in and pull the dirt over you.

Things are pretty tough in a lot of corners right now and I suspect that they are going to get a whole lot tougher before it’s done… if it ever truly is done.

I know that you are not inventing the news, but simply reporting it. But I encourage you to reconnect with the humor within you, which I know that you have. And then put it back out here for those who admire that wit.

Anger gets us nowhere in life. But fear is worse than anger. Fear puts us on the retreat, keeps us off balance and ultimately defeats us. I have thought about fear quite a bit over my lifetime and so have, by and large, taught myself to live without it. Because of that, I’ve weathered storms and live a pretty good life. I don’t think that anything that is coming—as bad as it probably will be—will change that for me. But more important than even that, my adult children feel the same way. I may not have had all that much success in amassing monetary wealth, but my collateral in family character is sterling. And that is more than enough for me.

As for the answer to your question, I guess I’d have to leave that to those who are more qualified to analyze and understand market forces and stock trading strategies. But I suppose that it does boil down to fear. I think people have been asleep for a long time in this country. Rather than it being the end of the beginning of the end, I think it is the end of the beginning to wake up. It’s a waking up to the fact that we are responsible for ourselves and to ourselves and those who have some immediate connection to us. It is a waking up to the fact that those institutions and the people who we elected or appointed to run them are incompetent and untrustworthy.

Of course, they have been that way for quite some time. But now it has become so very blatant and they almost laugh at their own transgressions while they rub the public’s nose in them. When did we learn to tolerate such abuse, or to admire such stupidity? I suppose it was a slow and insidious process, creeping over us while we slept.

So fear is the word of the day… perhaps the word of the years and decades to come. And it takes courage to overcome fear. Over seventy-five years ago, there was an inaugural speech from a new incoming president that contained these words:

“This is preeminently the time to speak the truth, the whole truth, frankly and boldly. Nor need we shrink from honestly facing conditions in our country today. This great Nation will endure as it has endured, will revive and will prosper. So, first of all, let me assert my firm belief that the only thing we have to fear is fear itself—nameless, unreasoning, unjustified terror which paralyzes needed efforts to convert retreat into advance. In every dark hour of our national life a leadership of frankness and vigor has met with that understanding and support of the people themselves which is essential to victory. I am convinced that you will again give that support to leadership in these critical days.”

I leave you with those words from FDR and with a prayer that we all find our way through the days ahead and that we can still laugh in midst of it all.

The Bluebird of Happiness may not suddenly fly up a bodily orifice… but we can always hope!

My current thoughts are these:
1. Don’t invest in things that you do not understand.
2. Half a nest egg is better than no nest egg at all.
3. Keep ready cash around. It may not be worth much, but at least you have something.

We are in uncharted territory. Wish I could provide insight, but I feel like I’m circling the drain, just like everyone else. Looking for a handhold.

Imagine if we had privatized Social Security and put it into the stock market. good heavens.

Nothing ground breaking – a huge German bank unexpectedly failed, and the German government issued a tepid response.

Buying low and selling high is as simple as approaching a stranger at the bar; the only requirements are courage and cash.

Bing, what’s happening in my opinion is the natural entropy of a credit based system. All economies rise and fall as consistantly as all people live and die. It sucks to see death and entropy, but it’s bloody inevitable.

well bing, mathetics has everything to do with this to friendily disagree with you. Look at the head and shoulders effect on any dow chart starting at ‘95 peaking last year at 14000, and now the decline is being clearly defined here in 2008. don’t take my word for it, look at a dow chart from 95 to present. the mathmatics and momentum cannot be disputed. the psychological factor is a part of that mathmatics, and ruled by it. people will react to this momentum but they are not the cause of the momentum.