Part II: "Transparent Markets"?
Sure They're Transparent -- As Long and Words and Meaning Don't Matter

I'll be the first to acknowledge that hindsight is 20/20 -- there's not much rocket science in figuring out why something blew up after it explodes. At the same time, it is fair to point out that any rational assessment of risk -- whether it's risks to competitiveness, or systemic risks to the financial structure itself -- must begin with probabilities. I say this because it is hard to imagine a scenario whereby the broken tort system or excessive regulation would cause a behemoth like Bear Stearns to implode in a matter of days. On the other hand, it is easy to imagine the rapid demise of any financial institution, if its depositors suddenly lose confidence in the quality of that institution's capital reserves....

"The Most Transparent Capital Markets in the World"?
What "Transparent" Does -- and Does NOT -- Mean

Was Treasury Secretary Henry Paulson correct in saying, "Our capital markets are the deepest, most efficient, and most transparent in the world." (emphasis added)....?

Credit Derivatives and the Great Avalanche
Hannah Montana and The Peloponnesian Wars

Yes, her fans may be heartbroken... and yes, the story may be trivial. But this only means that "trivial" on a large enough scale somehow still amounts to "news." The formula obviously does not apply to non-trivial heartbreak on a grand scale, because nowhere in today's news did a headline appear to declare, "Another 7,000 Home Foreclosure Notices Filed" (the running daily average for such filings). Put another way, some 259,000 home foreclosure notices have been filed in the five weeks since Bear Stearns blew up.

Wealth Disparity: The Coming Political Storm?
How Seventy Years Ago May Soon Sound Really, Really Familiar

If you're wondering what the "politics of anger" on a national level really sounds like, perhaps now you have a better idea. Politicians in our day won't have to invent the language of anger and virtriol -- the precedent is on the record. And the just-published May issue of The Elliott Wave Financial Forecast explains why likewise is indeed what we should expect in the near future...

Credit Crisis: Before & After

U.S. Treasury Notes, Trends and Subprime Mortgages
See How The Dots Connect Themselves

Today, after eight months and six reductions by the central bank, the fed funds rate is 2.25%. Three percent (or 300 basis points) in eight months' time is a large and rapid drop indeed. And, given all the media attention to this rate cut campaign, one would expect other rates to follow the almighty Fed's lead. Except that, if one did expect this, one would be sorely mistaken....

Retail Bankruptcies Bring Sharper Image to Weak Consumer Spending
With big retail chains going under, can small businesses find a way to survive?

As big retail chains, like the Sharper Image, succumb to too much debt and too few sales, they shine a light on the larger problem in the U.S. economy. If consumers aren't spending as much on gadgets furniture, and clothes, will the economy fall into a deeper recession?

What Does Debt "Buy" For the U.S. Economy?
The Law of Diminishing Returns, Applied

Over the years I've had to unlearn most of what I was taught in Economics 101, and I suspect that today's students continue to have their hats stuffed with the same rubbish. Apart from the little chart that showed how the price of widgets is a function of the supply/demand curve, the only other useful idea I took away from econ 101 was the law of diminishing returns. Perhaps you remember it too....

These Four Words Separate Financial Fact From Fiction
Only Bubble Psychology Could Complicate Something This Simple

Bob Prechter explained what the four words meant in his March 2007 issue of the Elliott Wave Theorist. It's been barely a year, but it may seem longer ago if I point out that the media then was full of headlines about "The Goldilocks Economy," meaning not too hot or cold but just right. Look it up. They never saw the debacle coming because they believed things were about as good as it gets. For anyone in that mindset, the suggestion that "Credit is not money" is no more intelligible than a radio frequency from outer space....

The Generals Survey their Battlefields: Iraq and the U.S. Economy

General David Petraeus and Fed Chairman Ben Bernanke are both dealing with Gordian knot problems -- one on the war front and the other on the economic front, And George Soros has some of his own thoughts on the subject of the financial system turned into Godzilla.

When Psychology Changes, News Changes
Old News, New News, Tomorrow's News, It Doesn't Matter... Psychology Does

When collective psychology changes, coverage of the news changes with it.

I realize how that statement can be understood in at least two ways, so let's get specific. Am I talking about "changes" in

a) how news will be covered, or

b) the version of news that has been covered already?

Headed For Recession: Are We or Aren't We?

From the “Today Show” to the “Tonight Show,” the Situation Room to the locker room, and the cocktail party to the carpool lane, one issue has taken center stage: U.S. recession -- Are we OR Aren’t we there yet? 

What REALLY Changed Their Tune
Payrolls, the Zero Line, and the Obvious Truth

We all know that, for at least six months, most of the monthly economic data has pointed to a slowdown (or worse). Consumer expectations slipped to the lowest number (47.9) since 1973; February durable goods orders (-13%) showed the largest one-month decline on record; several real estate and housing measures have the worst readings in the entire post WWII era. Yet none of the above was enough to convince the majority of establishment economists to publicly acknowledge the obvious -- namely that the U.S. economy is in recession. That acknowledgement came only after an especially crucial change appeared in payroll growth....

Squeezing Stomachs and Financial Markets Down to Size

Today, Treasury Secretary Henry Paulson threw out his first pitch for a major overhaul of the way the U.S. financial system is regulated. – to an equal mix of cheers and boos. But the really big story and marketing pitch of the day belongs to the purveyors of something called gastric banding, which helps overweight people lose excess weight via elective surgery. It's the medical equivalent of the squeeze that the financial markets are experiencing right now, thanks to the credit crunch.

On Shoes Dropping, and Other Things to Wait For
A Lot of Financial Footwear is Falling From the Sky

"Waiting for the other shoe to drop" basically means that you expect a final bad thing to happen that you can't control, in relation to previous other bad things that you couldn't control. The thing is, one piece of footwear after another has thudded to the floor since at least August of last year. A lot of people have been deprived of any financial piece and quiet, and in fact a growing number are now suffering deprivations of a more serious kind....

Irrational Behavior, In Theory and Practice
But Why Study Theory When "Practice" Is All Around?

Alas, research that involves volunteers in a lab setting is still just "theory" that fails to record and verify the actual "practice" of predictably irrational behavior. In fact, it's not clear to me why researchers would even bother with lab studies -- there's no shortage of conspicuous irrationality in the real world of finance and consumption. The history of stock markets amounts in large part to how investors buy the highs and sell the lows. For more than a year, the news headlines have been full of problems that started when lenders did dumb lending to borrowers who did dumb borrowing.

How To Cope with Economic Times That Try the Soul
Our Current Financial Crisis as Seen Through the Eyes of Thomas Paine

These are the times that try men's souls, wrote Thomas Paine in 1776, referring to the North American colonists' revolt from British rule. And now, referring to the U.S. economy, we can equally say that these are the economic times that try the national soul. Whereas last year and in years earlier, we here at Elliott Wave International warned about the tough times to come in the economy, today's news stories are full of woe.

The "Club" That Can't Grasp the Credit Crisis
Why Is There More Interest In Cures Than In Prevention?

The decoupling began with their lack of experience and ignorance of history. What I mean is that the Great Depression of the 1930s was part of the living collective memories of two full generations of Americans. But that's completely gone now. The lessons of that time are beyond the reach of a generation that doesn't read history, if it reads at all. So, everyone's risk valuation has been shaped entirely by economic prosperity and not at all by financial failure. The possibility of a system-wide crisis didn't fit any of the models. It's similar to the probability theory that skeptical scientists cited when they denied the existence of "rogue waves." Only recently did years of research and countless satellite photographs "scientifically" confirm what mariners had known for centuries -- that rogue waves are real indeed. And when you mix the alchemy of securitization with people who are decoupled from history, the decoupling has a domino effect.

Credit Crunch? What About the "Trust" Crunch?
Corporations, media and government have credibility issues

Every new revelation in the subprime debacle has turned out to be far worse than initially reported. That much is obvious to anyone who has followed the thing closely. But that's not to say that what happened with Bear Stearns over the past week fits the "worse than it looks" pattern. No indeed. In fact, the disintegration of Bear Stearns has moved the subprime debacle from "worse than it looks" to the level where "we cannot trust anything that the corporations, media, and government are saying about the crisis." Yes, that may seem like an extreme remark. But read these comments. Then let's consider if my conclusion seems "extreme"...

A Non-Guarantee Put to the Test (part 2)

Credit of a veeerrryyy different kind was the real reason for the unprecedented levels of homeownership. This different kind of credit took those levels where they'd never been before by making "homeowners" of folks who'd never owned homes before. Which is to say, folks who were often unable to qualify for a conventional loan. Fan and Fred wasn't motivated to bother with those types, given how easy their lives were via the benefit of Brother Government's wink & nod -- you know, the non-guarantee guarantee implicitly behind all "government sponsored entities," even when they act like hedge funds. So, Fan and Fred's competitors found a competitive edge of their own -- and it was called "Subprime." That's when you make loans without worrying about whether the borrower can pay back the money. You simply sell it on the secondary mortgage market....