Panic on Wall Street


footage of excited bald guys in Brooks Brothers
suits messing up each others comb-overs.

You’re supposed to
think happiness on Wall Street is good news for
the rest of us.

Ain’t necessarily.

Last week was a good
example: There’s this thing called
"momentum investing." Simply put,
it’s buying into whatever stock is going up
really fast, assuming there must be a good
reason, and trying to get back out before
everybody else realizes there isn’t.

Momentum players cause
enormous temporary price gains, which in turn
attracts more cash into the casino. People who
think of themselves as too smart for the lottery
pour their IRA’s into mutual funds, have to
put the money somewhere. So even some truly lousy
stocks are still going up, and most folks are
pretty happy.

That’s why private
companies like the Boston Celtics, Ticketmaster,
and Super Wash (the car wash chain) are rushing
to go public: people are willing to pay more for
their shares than they’re probably worth.

Somebody explain the growth
potential here: Ticketmaster isn’t any more
likely to double the capacity of Comiskey Park
than the Celtics are to begin franchising. As for
Super Wash, do you really want to sink your life
savings into a company you can replace with a
garden hose, a bucket, and a damp rag?

The skyrockets make a
pretty show, but by most historic pricing
yardsticks—earnings, yield, book,
etc.—the stock market is looking at about a
15 percent drop just to reach a relatively normal
value. That’s about 1000 Dow points from
here.

Yaaaa.

That won’t necessarily
happen right away, if at all. Maybe prices will
hold for a year as earnings catch up; maybe
kablowey tomorrow. Maybe three more years of
tulipmania, and then we party like it’s
1999.

Anyhow, Federal Reserve
Board chair Alan Greenspan, who speaks like an
undertaker trained in hypnosis, made a single
small mention last December of "irrational
exuberance," hinting that stock prices might
be approaching speculative levels. (Greenspan
went on to theorize that cheese comes from cows,
bowling balls roll, and Millenium is such
turgid crap you wonder why The X-Files is
any good.)

Boom. Worldwide panic
selling. 130 points off the Dow in 30 minutes.

Why all the fuss? Greenspan
and the Fed can deworm the tequila at will,
simply by raising interest rates a notch. That
makes money itself more expensive, discouraging
speculation.

Which would hurt business
at the Harrah’s on the Hudson.

Traders calmed down
quickly, however. Some good news came in. Read
this next with bitter irony.

Fortunately for investors,
"The Labor Department reported early Friday
that non-farm payroll jobs grew by just 118,000
in November, and the nation’s unemployment
rate rose to a four-month high at 5.4 percent.
The two figures suggested that the economy is
slowing down, allaying some fears about rising
interest rates."

Read that
paragraph—which comes verbatim from
CNN—again. Go on. You glazed the first time.
Read it again.

To Wall Street, low job
growth and surging unemployment are good news,
because the Fed is forced to keep interest rates
low so the faltering economy won’t flatline
entirely.

This is not unusual.
It’s just the most recent example.

As the labor/management
covenant called the New Deal is dismantled,
wealth centralizes, and America moves toward a
third world style, two tier economy, good news
for Wall Street is bad news for you and me. And
vice versa.

This fact is openly
discussed in Barron’s, the Wall
Street Journal
, Fortune, and the rest
of the nation’s business press. Without
shame.

So next time you want to
find a searing indictment of how deregulation and
globalization are destroying the American middle
class, don’t bother looking for a
progressive voice in the corporate media
darkness.

Just pick up Business
Week
or Forbes or watch CNBC. And pay
close attention to what they consider good news.

Deflating the Consumer
Price Index

The oldest Baby Boomers are
turning 50. Soon America will have more folks
over 65 than ever before. To anyone with human
parents, that should be cause for pride.

Social Security works
pretty darn well. Only about 10 percent of the
elderly line in poverty these days. In 1960, that
figure was one in three.

However, many analysts are
alarming younger people by claiming Social
Security will collapse sometime around 2029,
shortly after a glut of Baby Boomers retire and
overload the system.

There’s only one
problem if you assume that the U.S. economy will
grow at only a Depression-era rate for the next
several decades. If it grows at anything near a
more realistic historical rate, the
problem’s not nearly that bleak.

Stories about Social
Security’s impending collapse are supposed
to scare you into accepting the privatization of
the entire system, primarily for the benefit of
Wall Street investors.

But that’s the
long-term scam. In the short-term, a Senate
commission now claims to have discovered that the
current Consumer Price Index overstates
inflation. They recommend a change in how the CPI
is calculated, reducing the current figure from
3.2 to 2.1 percent.

Washington actuaries claim
that, coincidentally, this little adjustment will
help stabilize Social Security and save the
government $166 billion over the next ten years,
while reducing monthly payments to current
retirees by only eight bucks in 1988.

And if you buy that one,
you probably think static electricity can bring
down a 747.

The big trick lies in
compounding that little 1.1 percent cut. Assuming
that the reduction remains constant, ten years
later that’s a 10 percent cut. A decade
later, it’s a 19 percent cut. And so on.

Since Social Security is
indexed to the CPI, the younger you are, the more
you lose. If you’re 30, this sneaky little
maneuver cuts your future Social Security
payments by about a third.

Tax brackets are also
indexed to the CPI. A downward revision means
that the brackets will rise more slowly than your
actual wages, eventually "creeping" you
into a higher bracket. So it’s a tax hike as
well.

Finally, since wage
increases will now appear to exceed inflation,
shysters in both parties can grandstand in 1998
about how much better off we all are.

Sweet deal.

The Clinton administration
is getting tips on smooth-talking this rip-off
from Burson-Marsteller, the same PR firm that
handled Bovine Growth Hormone, Bhopal, and the
Exxon Valdez. Their advice? "Explain to the
average person that they are not being denied
anything, but are only getting what they are
entitled to."

Classic B-M.

Where will our money go? To
help trim a national debt created largely by huge
corporate tax favors, subsidies, and arms
contracts. So, once again, the government is
literally robbing the poor to pay the rich.

This CPI scam grossly
contradicts the will of the American people.
November exit polls showed that protecting Social
Security is more important to voters than a
balanced budget, and improving education and
health care is a far higher priority than
gold-plating the Pentagon.

Even of the budget was
America’s main concern, that’s still no
excuse for waiting until Christmas—when many
people are too busy and light-hearted to
notice—to furtively raise taxes and cut
Social Security for every single American.

While some careful
adjustments to the system may be necessary,
Clinton’s pending boast of
"saving" Social Security—simply by
slashing it—is all to predictable. After
all, this is the same guy who
"reformed" AFDC by abolishing it.

Ben Franklin once said that
nothing is certain but death and taxes.
Artificially depressing the CPI will do a fine
job of bringing America’s elderly more of
both.