Let's Wait 'Till Next Week on the Stock Market

The US stock market is behaving better than expected today. That is not, necessarily, cause for optimism.

On Friday, October 25, 1929, the New York Stock Exchange opened down hard, the culmination of a long, slow decline in stock prices. The big Wall Street bankers (the House of Morgan, Chase, and City Bank) stepped in late in the day and propped up the market by making a public show of buying blue chips stocks. The weekend was filled with newspaper stories how the wealthy elite had flexed their muscles to support the market. That short-term optimism didn't survive past the opening bell on Monday. The next two days (Black Monday and Tuesday) saw the market lose a quarter of its value; ten times the annual federal budget at the time disappeared in just two days.

The emergency Fed rate cut is a band-aid on a severed artery. It was a panicky move to forestall a market panic and it has worked, just like the Wall Street bankers stopped a crash on October 25, 1929. The question is whether it stopped a market panic or just stalled it for a few hours. Alone, the Fed rate cut doesn't accomplish much. It doesn't solve the mortgage liquidity emergency, it doesn't address oppressive oil prices, it doesn't end the financial drain that is the Iraq War, and it doesn't answer the fact that corporate earnings have collapsed.

The Bush economic stimulus package totals $150 billion, less than Bank of America and Citigroup shareholders have lost in the past three months. It's tiny, a drop in an ocean, but I doubt any short-term federal stimulus will have much effect. What is needed is long-term fixes to the mess created by the Bush years.