There's Only One End of the World... and This Isn't It

So here we are once again on the precipice, at least in terms of global stock markets and credit markets. Another bout of nail-biting panic is hardly unexpected, though it's always surprising when otherwise sane people veer sharply into hysteria. It's a good, albeit painful, reminder that the bonds of what we call civilization are always more tenuous than we would like to believe, that things like "value" and "worth" and "the economy" are ultimately the products of human beings simply agreeing on a set of rules. Stocks, bonds, gold, silver, none have any intrinsic value, nor do Gucci handbags, Deere lawnmowers, and GM trucks (in case anyone was wondering about that one). We act as if they do, because it gives us some sense of an orderly world, and because the alternative is just too unsettling to live with on a daily basis.

Market moments such as these, and they are neither rare nor common but each time they shake us collectively to the core, force us to confront those deep, hidden fears that we'd rather pretend aren't there. They also expose some of the flimsier foundations of worth and value. In the past six weeks, something like $30 trillion dollars of market value has simply disappeared. Some is undoubtedly sitting in mattresses, or bank deposits, or Treasury notes. But some went to settle debts that then went to settle partial debts that were then bought for pennies on the dollar. Poof. Gone. As if it never was.

And yet, the selling remains driven by credit market dysfunction and paranoia. There are some terrible companies that will go bankrupt, including the Detroit auto makers. Why didn't the CEO of GM drive to Washington in the hydrogen car prototype (even if it took a truck of batteries following him) and say," Ladies and Gentlemen of Congress, I've come here today on the wheels of the future. But we cant get there without the help of the American people. We need that help to build that future." That would have said something about the viability of his business.

But many companies are now trading with cash per share that is 25%, 50% or even 75% of their share prices, with real earnings even if those are discounted by a huge amount for economic nothingness in 2009. That is a sure sign that what is going on isn't driven by underlying fundamentals or their weakness.

Unless, of course, you believe that the whole global system is toast, that it's all been built on a house of cards and the game is over. That is an extinction-level event, at least for the wheels of commerce. Is it possible? Sure it is. If that's what is going to happen, be afraid, very afraid. Leave the city, any city, watch Obama's inauguration on TV far away and assume that that will be as good as it gets for a long, long time.

But if you don't believe that, the alternatives are considerably better. We are oversold, overanxious, and overwrought. Many of us will lose jobs, reassess priorities, get angry, and move on. Some of that will be for the best, ultimately, and some wont be. The fact that things may not be Armageddon doesn't mean that all is well, but we have to keep moving, adapting, and looking ahead. I've said there are opportunities around us, in the markets, for entrepreneurs and visionaries, and so far that has been a disappointment, but two years from now, there's a good chance all of us will look back and see this crisis in the rear-view mirror and look around a humbler, thriving world. Homilies? Maybe. True? Unquestionably. As one wise man said in recent weeks, there's only one end of the world, and this isn't it.

Comments

[Social Construct]

Just 'cause a cloud has a silver lining doesn't mean that it ain't gonna rain. I'm sure we're going to get through this mess but I doubt that the people that got us here will change one bit. That's what gives me the willies.

[cylindar]

Tell that to the Brazilian trader who blew his brains out on the stock room floor. Ooops too late.

[KillTheMessenger]

One does not kill oneself over money. Maybe his parents, his wife or his friends should have told him that.

[larry278]

One may kill oneself if one no longer has money to pay one's obligations. There are legends that some casinos have secluded spots set aside to quietly kill oneself. There are other zeitgeists than your particular zeitgeist, KillTheMessenger.

[circusfifthfloor]

Thank you. We ALL needed that sobering spanking. Tommy Lee Jones had a wonderful line in "No Country For Old Men"...after his deputy said what a mess they had found in the desert of a drug deal gone bad. He paused a second and said, ' Well, if it ain't a mess, it''ll do till the REAL mess gets here." Yep, it could and may get a whole bunch worse, but we must identify what is important in life and nurture it and share. John Wooden said a great player was someone who made those around him better. We don't need leaders if we live by that.....CFF

[Henry]

I have a brother-in-law who still farms the family homestead. And it is a very important segment of the economy doing well. His revenue has doubled on the same production. There is an intrinsic use-value to a bushel of wheat and there is also an exchange value which is merely an abstraction subject to many variables that not even a well educated person can understand.

http://www.e-adm.com/

[KillTheMessenger]

Cool. Since your brother in law is doing so well, can we scrap all farm subsidies now, please?

:-)

[Henry]

The answer of course is yes. Are you aware that the lions share of the farm bill is for food stamps? Farmers do benefit from extra demand but you could pay some attention. How many months in Iraq is 10 years of the farm bill?

[cadsuch]

Our market place didn't consider bonds and stock and gold to be valueless. Our market place has considered ENRON's limited partnerships with creative accounting to be valueless. It has considered bundles of mortgages and bundles of insurance policies, insuring the bundles of mortages to be valueless.

Business week magazine and Forbes magazine have been converted to tabloids spouting Bush/Cheney scare politics. THAT is what our market place in responding to. Those people are still in power. We have to spend time with rational thoughts in our head instead of years of scare tactics that we have been subjected to. ENRON creative accounting is not market fundamentalism. Financial journalism with all red pages and scare politics is not market fundamentalism.

And, the Chebey/Bush tax code adjustment, with GM customers getting several thousand dollars a year tax refund just for a customer buying an SUV is not market fundamentalism, either.

[LeonBNJ]

Yes, the current situation isn't the 'end of the world' for most of us, but for some it is. Good paying jobs gone forever, retirement funds disappearing to a fraction of needs, millions displaced from their homes. Hopefully we will learn from this crises and reform our tax laws to discourage bubble investments, revise our finanical services regulations to reduce the riskiest investments, cut the obscene pay for too may business executives and move us to universal access to affordable health care.

[KillTheMessenger]

Thank you. Very nicely said and down to the point.

[leevntheus]

Most people with a little upper ed that have at leasttaken Econ 101 have known that our system is a fantastical whimsy of smoke.mirrors, and above all , salesmanship. The factthat our money is conjured up out of the thin air of creating fake debt (fake being that it was created by fiat, not through real asset collateralization), leads ineveitably to acollapse of the ponzi scheme.

What interests me is how timely these events have rolled into play, JUST AS technology and productivity advancements reached a point of rendering BIG OIL, BIG BANKS, and BIG AUTO irrelevant.

The "matrix" we live in relies on salespeople, middlemen, brokers, and cons. And now that we don't need them to exist, the system collapses. Gee whiz.

My house sells power TO the grid. My car turns water to hydrogen to electricity and I only use it to go grocery shopping at the LOCAL ORGANIC store. For almost all else I shop online for used auction goods and theyare delivered to my door without the need of salesmen or brokers. No retail mark up, no commissions.Oh, and as for the bank?

They do process credit cardtransactions for my small biz, but I take all of my money out every day and add it to the CASH my clients pay me and I put it under the mattress (figuratively speaking).

The banks, autos, and oil have been burning US forever. Its TIME WE GIVE THEM THE FINGER.

[WASanford]

Thank you, I couldn't have said it better.

[Header]

And some of us took Econ 500 & 501 and learned about the mechanisms that you refer to as smoke and mirrors.

BTW - if you have a car that turns water to hydrogen to electricity (I think you are blowing smoke, but will give the benefit of the doubt), you are definitely the exception. A lot of us would like that technology in our driveway, but the "big" whatever company that can handle the risk of manufacturing and distributing hydrogen as fuel isn't a reality.

Hope your "mattress" pays you good interest...

[RoloTomassi]

The End of the World? No. But perhaps the end of Free Market Fundamentalism? God, I hope so...that would at least show that we have a shred of sanity left.

[KillTheMessenger]

You are pinning your hopes on the unlikeliest of outcomes (that we have sanity left, that is).

[RoloTomassi]

Fair enough on that one.

[leftLibertarian]

You are assuming that the system in place was/is a free market. But how can it be when there is a Federal Reserve and a Commerce Dept? I'd prefer to call it political capitalism, and you can see it in the phony 'free trade' agreements, how Freddie and Fannie structured their loans, and how the system in not bailing out these toxic companies.

If the US had a 'free market' system it would let these companies die.

[sposton]

Can Obama say, "Only Thing We Have to Fear Is Fear Itself"? Or are there other things to fear this time around?

[KillTheMessenger]

There is nothing to fear but our own stupidity.

[sposton]

And we seem to have an unlimited supply of it.

[tc399]

Unfortunately, that isn't our potential FUTURE stupidity. It is the years of greed and stupidity that we jumped off the cliff with 30 years ago. It has been in painless and enjoyable free-fall all this time, but I think it is finally about an inch from the sudden stop at the bottom.