The guys on Wall Street may have thought or hoped that the worst was over now that the Tea Party was starting to fizzle and the grilling of CEO's at the BBQ in Washington was starting to wind down, but then the climate changed and a sudden icy chill blew in over Wall Street. The crisis in Greece went from bad to worse, and now it looked like the country could collapse and drag the other "PIGS" (Portugal, Italy, Greece and Spain) with it, maybe even pulling down Great Britain, which is also struggling with huge debt issues and were likely to emerge politically weaker after Thursday's election. Who can blame the Masters of Universe for feeling a little paranoid? The rational expectations turned into irrational fear and panic faster than you can flip channel on your TV.
"Even apart from the instability due to speculation, there is the instability due to the characteristic of human nature that a large proportion of our positive activities depend on spontaneous optimism rather than mathematical expectations, whether moral or hedonistic or economic. Most, probably, of our decisions to do something positive, the full consequences of which will be drawn out over many days to come, can only be taken as the result of animal spirits - a spontaneous urge to action rather than inaction, and not as the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities."(John M Keynes, The General Theory of Employment, Interest and Money, London 1936.)The trouble with Wall Street and the pundits is that they are not all that smart when it comes to the real economy. The models don't tell them what to expect, and they don't know how to interpret the battles in the streets. They got scared and they sold. Add to that computer programs that send the consumer giant Proctor and Gamble down drastically, and everybody was talking about how America's recovery would be hit if the European market goes down and the dollar strengthens against the Euro. There goes the recovery....
"There was a lot of panic selling that came in and the market fell apart,” Peter Cardillo, the chief market economist of Avalon Partners, told the New York Times.
The rational for the obscenely huge bonuses Wall Street pays its executives is that they are supposed to be superstars, who carries enormous responsibility, and are really, really smart.
But on a day like this, they proved themselves to be driven by fear, greed and ignorance, like the rest of us, except that they somehow had managed to rake in millions and millions in bonuses, while we others counted our losses. For all its beauty, capitalism is a self-destructive system, which is why we need the government to rein it in, to set the rules and make sure that they are followed. This is were the stupids in the Tea Party got it all wrong. If you don't want to get screwed over again and again by the rich and powerful, you need government, and not just a little of it. Keynes knew that, FDR knew it and we should all know it by now. Government is not socialism, not even big government. It's actually the only way to save the capitalist system from blowing itself up.