Panic on Wall Street

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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.