Wednesday, September 24, 2008

Ignore These Experts!

Jim Cramer of TV's "Mad Money" is on a crusade. Like a lot of others, he is telling us to enact the Paulson bailout plan, but fast, or we will have another Great Depression on our hands. Don't even take time to think about it! Just do it! A lot of people who know a lot about things like the stock market are yelling the same things. Should we accept their expertise and do what they say?

I had an epiphany about this the other day. I was talking to the broker, I'll call him Jim, for one of my investment portfolios, the one that has all of my son's college money in it. Was it seriously damaged by last week's stock market crash? I remember moving a lot of it into cash, partly because I saw an eventual economic meltdown as inevitable, but I couldn't remember how much I had protected in this way.

[I haven't made any new investments in the stock market for at least five years, and have gradually been moving my money into investments that are not as likely to be hammered by hard times. But, partly out of laziness, I had not moved everything out when the dreaded ax fell.]

To my amazement, Jim told me that I actually made $500 during the week of the crash. "What the Hell?" I asked. Well, he explained, that's because the rally on Thursday and Friday was so huge. I thought of the many thousands of market participants taking in the facts, calculating possible results, then buying or selling. What were they reacting too? "Well," I said, "they had just been offered the biggest welfare payment in the history of the planet." "Yeah," he said, "if that doesn't make them happy, I don't know what would." Of course, he said, this bailout rewards people for making mistakes, which is the exact opposite of what markets are supposed to do, but [sighs] I guess it's necessary. Some people even think that we could profit from it, though [laughs nervously] that's pretty optimistic. I'd seen the same New York Times editorial. I said I thought it was hilarious. Still, I found it, for the moment, mysteriously difficult to be strongly opposed to the package. "Well," I said, "it is beneficial to people like me [ie., fools who were still in the stock market]. And it's meant to be." "That's right!" he said. I didn't want to start a big political discussion at that moment, so I left of the end of that next-to-last sentence: beneficial to people like me, at other people's expense.

Holy crap, I thought after hanging up the phone, this is a class thing isn't it? And I'm now a member of the exploiting class. I've already exploited my fellow human beings to the tune of (if I cash out now) five hundred bucks.

Then a bigger realization: Marx was right, it is very natural to think in accordance with your class interests -- what Marx called "ideology." There's no need for conspiracies. Sometimes the question is as obvious as "Who puts the butter on my parsnips?"

Here is the moral of my story. A lot of those "experts," like Jim Cramer, have interests that are very dependent on the stock market and related institutions. That's actually why they are "experts." They do this stuff for a living, a lot of them. Their interests will be served, at least short term, by this latest bailout, if it goes through. You should interpret their words accordingly and take them with a grain of salt. It is really a zero sum game of them vs. you.


Anonymous said...

Who is putting butter on my parsnips is right. As the saying goes, "There are no libertarians in a depression." I have never been, nor probably never be, in the stock market simply because doing so requires a full-time commitment on behalf of the investor unless one is prepared to rely on someone with only a brokerage fee at stake. That said, the market has always trended upwards if one is in it for the long-term. This bail out plan moves Bush 43 to the bottom 5 presidents in my book (which nobody reads). A government bail out can only slow down a market, not prevent it. This from a political scientist mind you.

Kyle Scott

Anonymous said...

As Chalmers Johnson in his books "The Sorrows of Empire" points out, we are the world exploiting class unfortunately which is why GW and Blair stood side by side as the 2 greatest capitalist nations. Unfortunately we are in this at a global level which is why the little guy from Iran "Dinner Jacket" was gloating at the UN the other day waiting for our demise.

Anonymous said...

There is an interesting editorial in today's WSJ (Sep 25) which offers a non-dire assessment on the 'bailout'. He thinks Paulson's $700 billion will make a ton of money, perhaps up to 2.2 trillion dollars. He has some interesting financial arguments for this view. I just wonder though, if the government does make this kind of money, and we're all in it now, will the taxpayers ever see a dime of it?