Confidence

[agnostic]

I find the administration focus on confidence, and the faith they have in government intervention, laughable.

Real finanancial planning (looking ahead more than 2 days or 2 weeks) is possible only when the rules of financial mechanics are stable for the time frame of concern. Each government intervention/rescue changes the rules of the game, and so each and every one of these government actions, far from improving "confidence", will reduce the confidence of anyone who is trying to plan ahead. When the rules are in flux to this degree, the only rational course [for people who are not plugged into the inner sanctums of government] is to stay on the sidelines and wait for the rules to stop changing.

In other online sites, I see a lot of people wondering "is the bottom near" or "when will the market bottom arrive". My prediction is there will be no market bottom until the politicians stop trying to rescue the economy. Right now, it looks like the politicians will need at least a year to figure out that there is no political reward in coming up with another rule change.

[JimZ]

I believe the term "Con Artist" is based on the idea of a swindler gaining your confidence...also known as a "confidence game". Once they gain your confidence, they then perpetrate their fraud.
Given that context, I completely understand why our governmental leaders are focused on confidence.

[agnostic]

Actually there have been several confidence games. One was the confidence game in Wall St run by the folks who came up with all the exotic "securities" (collateralized debt obligations, credit default swaps, ...) with punchy acronyms. That was a pyramid resting on the quicksand of subprime mortgages. The pyramid is now unpriceable because there is no functioning market for the those ortgages or their unregulated derivatives.

We (as a country) are paying for the dismantling of that game as the deleveraging process spills over into the world of normal businesses, whose stock trades on more-regulated markets.

I picture the economy as a giant beast, grossly disfigured by 20 plus years of excess. In the last year, enough people have caught on to the first scam so that the head of the beast has been chopped off. But it is a huge beast, and the rest of the body takes a long time to die. Some extremeties may not even be aware the head is gone! But Frankenstein [oops, I mean Bernanke] and Igor [oops, I mean Paulson] are desperately running a new confidence game with all their rescues and bailouts, trying to bring the beast back to life.

So they try to "inject liquidity" and apply other bizarre (and barely constitutional) stimulants. They may in fact have the resources and ingenuity to make a leg twitch or get the fingers on one hand to wiggle. But I think most of the people attending this forum can understand the beast really is dead. It may take a couple years or more before our "leaders" give in and stop inventing life supports for a headless creature. Only then can some kind of new economy rise out of the belly of the beast.

[agnostic]

Sometimes reading the financial pages, I get this eerie feeling I'm just watching a never ending series of Viagra ads. Here are two snippets yesterday from the Bloomberg website:

A: Rate Cuts, Fiscal Stimulus Needed to Fight Slump
By John M. Berry

Oct. 17 (Bloomberg) -- For two years after housing prices began falling and a year after the bursting of that bubble turned into a financial crisis, U.S. consumers soldiered on. Month after month, their spending, the mainstay of the economy, kept increasing.

Now, for the first time in 17 years, slower income growth, tighter credit and the loss of wealth from plunging stock prices -- along with house prices that still are falling -- have caused them to retrench. The result is the onset of a recession the depth of which no one can yet gauge.

Various parts of the government, with the Federal Reserve leading the way, have taken a series of unprecedented steps to deal with the financial crisis. But more aggressive action is needed to help restore consumer and business confidence and enable households and state and local governments to boost spending.

B: U.S. Economy: Sentiment Drops by Record; Starts Fall
Shobana Chandra

Oct. 17 (Bloomberg) -- Confidence among Americans fell by the most on record and single-family housing starts hit a 26-year low, posing an increasing threat to consumer spending that accounts for more than two-thirds of the economy.

The Reuters/University of Michigan preliminary index of consumer sentiment fell to 57.5 this month from 70.3 in September. The measure averaged 85.6 last year. Construction of single-family homes dropped 12 percent last month to a 544,000 annual rate, the Commerce Department said in Washington.

Today's figures show that the tightening credit crunch has spurred a further step down in the three-year real-estate recession. Falling property values, along with the crash in stocks, threaten to cause the first decline in consumer spending since 1991

In Roman times, when the government wanted to distract people from the unpleasant reality of an empire on the wane, it built Coliseums and put on "games". I suppose that built confidence in the people whose lives weren't at stake. When are Bernanke and Paulson going to include games in their arsenal of tricks? Or, maybe "who can spend a trillion dollars in 10 days" is the game and they're already playing.

[man4pak40]

Most of them were able to keep their farms during the Great Depression because they did not borrow money and invested their money in their farms, and did not keep it in banks, or lose it in banks when the banks went bust.