What we should notice here is that our free marketeers want our government to engineer stock market blowups to the upside and subsequently intervene to save their bacon - in the form of inflating the monetary system (i.e., lowering rates) - when the inevitable bubble bursts. And that's exactly what the Fed has been doing - in 1998 with the meltdown of "Long-Term Capital Management" (yet more chicanery with language) and again in 2000 with the bursting of the high-tech bubble. Each time the Fed engineered cheaper money to avoid a "market correction," and in turn set the stage for a frothier bubble that would burst more violently when the last fool was had. Effectively, the Government arranges so that to relieve the profligate, it punishes the thrifty. One might say that things are a tad a-skew.
James Grant - an economist of the Austrian school, and a remarkably sensible man in spite of many years working in high finance - nails this lunacy on the head in a marvelous NYT op-ed of several days ago. A few memorable exerpts would include:
Understandably, it’s only the selling kind of panic to which the government dispatches its rescue apparatus. Few object to riots on the upside. But bull markets, too, go to extremes. People get carried away, prices go too high and economic resources go where they shouldn’t. Bear markets are nature’s way of returning to the rule of reason.
And, my favorite of all:
Now comes the bill for that binge and, with it, cries for even greater federal oversight and protection. Ben S. Bernanke, Mr. Greenspan’s successor at the Fed (and his loyal supporter during the antideflation hysteria), is said to be resisting the demand for broadly lower interest rates. Maybe he is seeing the light that capitalism without financial failure is not capitalism at all, but a kind of socialism for the rich.
Larry Kudlow, Jim Cramer, and the rest of the high finance boys are lined up and ready for a guvment handout. Git yer butt out here, Bur-nan-kee, and give us our doe!! Just mark what they'll say when the indigent pikers line up behind them. Sponges, one and all!