by Deb Cupples | Today's New York Times reports that Barack Obama may choose Timothy Geithner as the new Treasury Secretary. Bloomberg, an esteemed member of our nation's financial media, seems ecstatic about it and speciously implies that the mere mention of Mr. Geithner's name is good for our markets and economy:
Though the article is ostensibly about Mr. Geithner, Bloomberg says very little that's actually about Mr. Geithner. You can read a few highlights in Mr. Geithner's official bio, which is not helpful, beyond showing that Mr. Geithner is a well-educated polyglot with experience under multiple administrations.
Below is the main paragraph in Bloomberg's article that is actually about Mr. Geithner:
"Geithner has helped lead U.S. efforts to combat the deepest financial crisis in seven decades, helping oversee the decisions this year to intervene in American International Group Inc., rescue Bear Stearns Cos. and leave Lehman Brothers Holdings Inc. to fail. (Bloomberg)
There isn't enough detail for us readers to get a clear picture of who Mr. Geithner is, but it's hardly comforting that Mr. Geithner was involved in funneling $150 billion in strings-free money to AIG -- a company whose executives re-distributed tons of shareholder wealth to themselves despite the company's failing health: a company that only a month ago was still considering bankruptcy despite massive infusions of tax dollars.
The upshot: Mr. Geithner may turn out to be great or may not, but Bloomberg doesn't give us readers enough information on which to make reasonable speculations.
I'm skeptical -- not about Mr. Geithner (about whom I know so little), but about Bloomberg's implying that the mere possibility that Mr. Geithner may become Treasury Secretary is good for our nation's markets and economy.
Fact: all sorts of things other than events directly affecting a company's value can drive stock prices up or down. We saw Dow-listed companies plummet in late September, apparently (or so the media claimed) for no reason other than that the House voted down the first $700 billion bailout bill.
Panic among ordinary investors can drive stock prices down, as they scramble to sell off stocks and cut their losses. Said panic is largely fueled by media reports and perhaps concurring advice from thousands of investors' astrological experts.
The opposite is also true: extreme confidence that stock prices will rise beyond the stars can put ordinary investors into a buying mood, which can drive up stock prices. We saw that happen during the tech-stock bubble -- a buying frenzy that former Fed Chairman Alan Greenspan correctly labeled "Irrational Exuberance."
Like extreme pessimism, the so-called "irrational exuberance" is often fueled by media reports (or astrological experts).
But it's not only masses of ordinary investors who drive stock prices up or down.
Institutional investors (e.g., hedge fund managers, mutual fund managers, brokerage houses) can have a much quicker and more direct influence on stock prices because they tend to hold more shares than ordinary investors.
Institutional investors have been known manipulate stock prices by myriad means: buying big blocks of a company's stocks; selling off big blocks of a company's stocks; spreading false rumors spread about the media that are intended to drive down a company's stock prices....
In September 2008, the U.S. Securities and Exchange Commission expanded an investigation to include market manipulation by institutional investors.
We saw market manipulation in connection to the WorldCom scandal, which also involved media manipulation (or complicity). Remember super-star stock analyst Jack Grubman, who worked at Citigroup subsidiary Salomon Smith Barney?
Reportedly, Mr. Grubman kept publicly urging ordinary investors to hold or buy WorldCom stocks even when it should have been obvious to Mr. Grubman that WorldCom was in major trouble.
Why the bad advice? Reportedly because the firm that Mr. Grubman worked for would get huge investment-banking fees from WorldCom -- IF WorldCom CEO Bernie Ebbers chose to use Mr. Grubman's firm. Naturally, Mr. Ebbers wanted WorldCom's stock prices to stay high, even artificially high, because the company's shares of stock would be worth more and so would Mr. Ebbers' personal shares of WorldCom stock. (PBS)
'Sorry about the tangent. My point is this: Bloomberg is just one example of financial media that draws specious conclusions about public policy based on specious speculations about the causes and the significance of movement in stock prices.
The New York Times and CNN similarly attributed yesterday's increases in the Dow and the S&P 500 to the mention of Mr. Geithner's name.
Fact: whether stock prices go up or not, our nation's economy is still seriously ill. Our unemployment rate is still high (6.1%): we lost 240,000 jobs in October, 284,000 in September, and 127,000 in August. (Bureau of Labor Statistics).
As Bloomberg, itself, acknowledged last week, U.S. retail sales dropped 2.8%: the biggest drop since 1992. That's not good for our nation's economy, though it's natural given that people are losing jobs left and right and don't have as much money to spend.
Oh, and yesterday, some huge companies (e.g., Citicorp and Boeing) announced that they plan to collectively cut tens of thousands of jobs. That won't be good for retail sales or our nation's economy, either.
Making matters worse, our government isn't in the best position to help out, given that our national debt was already $10.5 trillion (about three times our nation's annual budget) even before committing more than $1 trillion to bailing out various corporations whose executives helped drive those companies into a ditch.
The upshot: it may be wise for ordinary investors to read with skepticism any conclusions or speculations they read or hear in the media based on stock prices.
Memeorandum has commentary -- as does the blog "Fund My Mutual Fund."
Other Buck Naked Politics Posts:
* Did Anti-Bailout Vote Really Cause Dow to Drop?
* AIG Spent $100+ Billion in Bailout Funds, Still Might File Bankruptcy
* Paulson's Op-Ed: Specious Statements and Omissions
* Are Bailout Funds Being Misused?
* Cutting Executive Pay Would Save Jobs
* Execs Made Millions While Driving Companies into Ditch
* Senate Considers Another $25 Billion Auto-Industry Bailout: Why?
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