Did the bailout increase market volatility?
October 28, 2008 by Personal Liberty News Desk
President Bush and Congress may have attempted to quell the volatility of the stock market by approving the $700 billion bank bailout, but some experts are suggesting the move has had the opposite effect.
A report on Newsmax raises concerns about how the rescue package and related measures have affected issues of value and risk.
"Now that deposits are guaranteed, basically I as an investor have no incentive to hold equities, so I sell them and put my money in bank deposits," financial author Marc Faber explained to CNBC, according to the news provider.
He claimed that government interventions have made it "impossible to forecast market movements."
And Chris Whalen of Institutional Risk Analytics suggested in a recent newsletter that the bailout has led to a situation in which price and value are no longer linked and investors have lost confidence.
"No wonder the entire stock market is having an extended nervous breakdown," he added.
Meanwhile, ABC News reports that despite the current financial uncertainty on Wall Street and the bailout, many CEOs and senior-level executives will still receive higher-than-expected bonuses this year.
Marc Faber has that part right: market fundamentals and analysis become useless when all Geithner or Bernanke have to do is open their mouths (or the administration has to do is open the tax coffers) and everything you ever knew turns instantly to dreck. The other part is that the disappeared bailout money (where’d it go?) is what the large institutional investors are using to maintain the illusion that average players are still invested in the stock market. Through frenzied electronic volatility the illusion of liquidity is created. Newsflash to Chris Whalen: Any normal private investor has not simply lost confidence, he is standing on the sidelines broke or nearly so. There is no liquidity among the private sector, they lost their marbles in the crash. Now just the big kids are playing, and they’re doing it with fiat marbles fired from laser-guided robot guns. Anyone who still wants to play in this game has definitely lost his marbles by any interpretation of the phrase.
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