Global Stock Sell-off Now Third Worst in History


The Daily Beast’s Zachary Karabell provides excellent insight into the world-wide economic meltdown in this article, noting that the recent global sell-off represents only the third time in the past 40 years that stocks have fallen this precipitously.

He says the 16 percent decline in the S&P 500 during the past 10 days is surpassed only by drops in October of 1987 and October of 2008. The article is full of little gems like this one: “Since global markets bottomed in March 2009, there has been an uneasy calm, the capitalistic version of the ‘Phony War’ period between the fall of Poland to Germany in September 1939 and the fall of France in May 1940.”

Karabell says investors have been waiting for elected officials to take strong action to prevent another “synchronous global financial panic,” and anticipating a new meltdown in the absence of such action. That said, he does note that the reduced leverage and increased capital on the balance sheet of today’s financial institutions gives them additional stablity when they’re hit by this kind of financial tsunami.

Karabell also astutely notes that the presence of global markets in a world without global regulatory controls is problematic.

The funny thing is that the very forces blunting the reforms now needed in Washington, D.C., are the same ones getting clobbered: the politically powerful banking and financial services industries.

This scenario lends credence to one of the Cynical Times’ core beliefs, which is that the longterm outcome of deregulation is financial anarchy. This happens when the worst players in an industry like health care or banking force more reputable firms to race them to the bottom by matching their unsavory tactics, lik forcing more cesarean deliveries, because they’re cheaper, or engaging in predatory mortgage lending.

Of course, the short-term outcome of deregulation is increased profits. That’s a hard drug to refuse for executives of publicly traded companies who have a fiduciary duty to increase shareholder value and a personal stake in doing because so much of their pay comes from stock options.