by Deb Cupples | As Bloomberg was a few days ago, the New York Times seemed ecstatic that the Dow Jones Industrial Average saw gains yesterday. Big whoop. The Dow's upswings don't indicate major upswings in the economy.
Our unemployment rate is still high (6.1%). Retail sales have still suffered the largest drop since 1992. Americans are still losing their houses. Our nation still lost 651,000 jobs from August through October, meaning masses of people are spending less money, meaning that our economy is shrinking -- which will likely cause even more job losses as businesses become less able to afford employees.
Oh, and our national debt is still racing toward the stars, as government officials are still funneling tax dollars by the tens-of-billions to companies whose executives recklessly drove those companies into a ditch.
Making matters worse, the people running the companies receiving the bailout funds are refusing to put the bulk of those funds toward unfreezing credit markets by generating loans -- which was purportedly the whole reason we taxpayers committed hundreds of billions of dollars to those companies.
Instead, many of those executives prefer to spend the money buying other banks, giving employees raises, and giving executives (themselves) bonuses.
In short, some fundamental things are severely wrong with our nation's economy and financial system -- and none of that has changed simply because the Dow Jones Industrial Average saw some gains yesterday. The Dow doesn't even serve as solid evidence that our economy is doing better.
How could it be? The Dow is merely an index of 30 companies' stocks. Stocks can go up and down for all sorts of reasons that have little to do with the actual state of our economy or the actual value of companies.
Panic among ordinary investors can drive stock prices down -- even if a the panic is baseless and a company's value stays the same from one day to the next.
Said panic is usually fueled by media reports or perhaps concurring advice from thousands of investors' astrological experts.
Extreme confidence that stock prices will rise beyond the stars can put ordinary investors into a buying mood, which can unreasonably drive up stock prices. We saw that happen during the tech-stock bubble -- a buying frenzy that former Fed Chairman Alan Greenspan correctly labeled as driven by "Irrational Exuberance."
Like extreme pessimism, the so-called "irrational exuberance" is often fueled by media reports (or maybe 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 quicker and more direct influence on stock prices because they tend to hold more shares than ordinary investors. Some institutional investors may have agendas that they don't admit publicly.
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 via 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.
Back to my point: why certain media (e.g., Bloomberg and the New York Times) seem eager to pop Champagne corks every time the Dow goes up a bit is beyond me.
It seems like a false sense of over-confidence in symbolism, because fluctuations in the Dow don't necessarily indicate a recovering economy -- or even an increase in companies' actual values.
Naked Capitalism has some interesting things to say about the bailout, and Memeorandum has other commentary.
Other Buck Naked Politics Posts:
* Did Anti-Bailout Vote Really Cause Dow to Go Down?
* Cutting Executive Pay Would Save Jobs
* Execs Made Millions While Driving Companies into Ditch
* Lehman Execs Redistribute Shareholder Wealth (to Themselves)
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