Why Politicians Don't Matter on Wall Street
GLASS, ANDREW J.
Washington-USA WHY POLITICIANS DON'T MATTER ON WALL STREET BY ANDREW J. GLASS Washington Our times enshrine myths and dismiss history. Witness the Democratic politicians who have sagely...
...Persistent deficits are a bad idea if only because the Japanese and the Germans will not go on forever buying the Treasury's paper so Americans can run their government beyond their means to pay for it...
...After the climax came, bearish traders dutifully read Administration policymakers their rights: Whatever you say or don't say will be held against you...
...I came to feel this mechanism was so straightforward that the pros were downright embarrassed about being asked why prices fell...
...Its principal function is to match buyers with sellers...
...Now they say that the worse might have been avoided had Ronald Reagan and the Democrats showed a little more spunk by closing a $23 billion gap in the Federal budget...
...and, more pointedly, might lengthen the already long odds against the chance of Vice President George Bush succeeding to the Presidency, save by death or default...
...Mostly, little guys lose out because they get in after the bull market is front-page news and then miss the top by staying in after the pros have pulled out their cash or else sold short...
...Major banks—looking for ways to recoup from having lost a bundle in Third World loans—reacted by pushing interest rates up even faster than the Fed wanted them to...
...The one thing a confirmed populist like Bryan had in common with his protax Democratic descendants is the erroneous notion that political agendas drive economic forces...
...That's why on Black Monday, Baker was at Frankfurt airport, seeking to smooth things out with the obdurate Germans...
...stocks trade in London...
...Reversing course, theFedlowered rates by injecting credit into the system...
...Moreover, pat explanations make no sense...
...Art investor who sought to work the nascent Tokyo or Hong Kong exchanges was blocked by massive paperwork, trading delays and currency bottlenecks...
...It runs 24 hours a day, buckled together by satellites...
...It raised interest rates...
...What happened was this: At the Fed, an orthodox conservative economist, Greenspan, new at the helm, worried that inflation would run free...
...Blue chip U.S...
...For in one important respect Wall Street has in fact changed...
...I suspect the basics haven't changed much in the last 30 years...
...A worried Treasury chief boarded the next Concorde home...
...Usually it's the other way around...
...Before they had turned bearish, these jumbo players feared that if they moved into cash and safety, as logic dictated they should, they might be accused of failing to outperform the averages—a cardinal sin in their competitive business...
...Wall Street is still an auction market...
...After all, none of the 600 million-odd shares traded simply vanished...
...Cheaper money and equity bargains brought institutions back in on the buying side—at least temporarily...
...Black Monday was a crash waiting to happen, despite the best or worst effects of hapless Washington officials, from Reagan on down, to influence events...
...They next compounded the damage by reversing stride tosellintoa falling market...
...In West Germany's export-led economy, inflation stifles jobs...
...Bryan believed the nation's economic ills could be cured through the free coinage of silver against a fixed price for gold...
...When the pros believe they can make more money by buying something other than stocks—bonds or gold, for instance—they dump iheir equity portfolios, by selling them to greedy or foolish amateurs...
...While that would make perfect sense, I'm sure most of the current crop of Democratic contenders wouldn't know whatever he was talking about...
...To satisfy the press, they would retreat into some prattle about how Congress had taunted Dwight D. Eisenhower or how John F. Kennedy was unfair to business...
...Insiders, sensing that money funds and bonds were once mòre an attractive buy, sold their stocks into a thin market and it promptly crashed...
...As a Wall Street observer...
...The message was that an already weak dollar would be allowed to fall against a strong D-mark—thereby improving America's relative trading position, but also further harming the Administration's tarnished reputation for failing to stand behind its deals...
...Under the eye of their French hosts, key finance officials had earlier more or less agreed in Louvre to support the dollar in world currency markets within a preset range...
...And yet, how many of the scary stories about "panic selling" suggested that there was "panic buying" under way on Black Monday as well...
...In the late 1950s, Wall Street stood virtually alone as a maker of financial markets...
...One need merely recall how Richard M. Nixon, reversing the policies of Bryan's nemesis of 1896, William McKinley, drove the dollar off the gold standard in the early 1970s...
...Treasury Secretary James Baker thereupon marched into the White House press room to say that the Administration would not match the Germans, who were being asked politely to back off...
...Still, deficits are not the reason the market crashed after nearly five years of sustained economic growth...
...Bui I wonder if our current lawmakers ever heard of William Jennings Bryan...
...They merely changed hands, at far lower prices, thereby creating another set of potential winners and losers when, inevitably, prices rise again...
...Bryan's plea to inflate the money supply won him the party's nomination—at age 36...
...Nevertheless, when governments fail to coordinate their fiscal policies in a worldwide market they are asking for trouble...
...So whatever happens to the economy the Democrats—and, for that matter, the Republicans—will not have to lake a political hit come Election Day...
...Baker's mild reaction, characteristically hyped in the financial press, was aimed at avoiding a precipitous rise in U.S...
...Experience warns against formulas the traders privately view as bilge...
...Thus Bonn naturally did its thing...
...As a young Wall Street reporter for the old New York Herald Tribune, I got to know a few traders...
...In that same nervous world there is no stigma attached to losing, say, 15 per cent of a client's stake so long as overall averages concurrently fall by, say, 20 per cent...
...Meanwhile, they bought "insurance" for themselves on the Chicago Mercantile Exchange in the form of bearish index options...
...Tokyo investors can handily buy or sell anything Wall Street has to offer...
...Yet another lesson that needs to be learned from all this, and hopefully will be, is that computer trading and worldwide markets will unavoidably cause more such uncontrolled swings in values —snaring a fresh generation of innocents in the ensuing whirlwinds...
...interest rates—which could choke offeconomicgrowth...
...would make bonds an even more attractive buy over stocks than they were...
...By October, all signs indicated that the stock market was overbought...
...That is, Foley says, whenever politicians want to act they assert that Wall Street has sent them a signal, and that unless they respond to it quickly the markets will punish them...
...Those programs necessarily trigger wild swings in the markets by initiating huge buy and sell orders...
...And no one government controls these processes...
...Today there is a unitary world market...
...But probably it won't be...
...Although the actual nitty-gritty behind so-called program trading is quite complex, Las Vegas habitues would recognize it as the house cut...
...Nonetheless, the system compelled many portfolio managers to hang on until the curtain fell...
...Were Bryan running for President today, he might rail at the jumbo computer traders pressing down "upon the brow of labor this crown of thorns...
...Tom Foley, the House Democratic Majority Leader, also thinks it works the other way around...
...The hook is that President Reagan must endorse a tax increase...
...By playing dump the dollar, foreign investors will, inevitably, one day squeeze the Treasury at a moment when the Treasury can least afford to be squeezed...
...That is not to say the crash wasn't real, or that many small investors haven't been painfully mauled...
...By then, however, it was too late to coordinate anything beyond an exchange of mutual notes of sympathy...
...People who manage pension fund investments now regularly turn to billiondollar computer programs to bail them out of tight spots...
...indeed, it no longer exists, at least in the classic fashion it once did...
...Andrew J. Glass, a frequent New Leader contributor, is head of the Con Newspapers bureau in Washington...
...So he did his thing and tightened the money supply...
...That's one lesson that needs to be learned...
...To subscribe to the notion that the bazaar is no more and no less than a bazaar does not mean one must reject the notion that big deficits in good times are a lousy way to run the country...
...Witness the Democratic politicians who have sagely called for new taxes to prevent, they say, a repetition of Black Monday on Wall Street...
...In 1896, he vehemently denounced the Eastern Republican establishment, telling an enraptured Democratic National Convention in Chicago: "You shall not crucify mankind upon a cross of gold...
...Last month the thunderheads gathered when the Germans, Europe's economic leaders, became even more worried about inflation than the Federal Reserve Board's cautious chairman, Alan Greenspan...
...Back then, the professionals didn't especially care whether the market rose or fell: They made money so long as it moved...
Vol. 70 • November 1987 • No. 16
