[tw]

Originally posted by sycamore
Who says there is necessarily a problem? If anything, the problem appears to be psychological on the part of the traders.
The fundamentals of the economy seem solid, so this could still be part of the correction.

An invested public whose confidence in how government is handling widespread corporate fraud suddenly turned into a herd mentality of theater goers who discovered fire existed behind the smoke - despite what management (government) kept saying.

Months ago, it was clear that fire was not isolated to a broom closet. Government said nothing. OK. Economic fundamentals are still good - although not great.. Air is still breathable. Investors either withdrew to cash or sat to wait out the event. However, so many falsified spread sheets in cooperation with at least four of the big five accounting firms; then Enron. Clearly government was going to do something. Investors still waited.

George Jr finally defined a government's response to widespread corruption. He endorsed a policy of business as usual - do nothing - protect top executives. That did it. Investors began running for the door when it became obvious that George Jr would deny a fire even if his own arm was burning.

The Economist, a conservative publication, summarizes best:

For an administration haunted by the ghost of George Bush Senior, whose defeat in 1992 was blamed on a sluggish economy, the parallels are becoming painful, not least because the current president's efforts to assure Americans are also falling flat.
Mr Bush's trip to Wall Street to preach about corporate ethics was widely derided as too little, too late. This week's follow-up, a hastily arranged pep talk on the economy in Alabama, proved another embarrassment.

That was last week. Earlier this week, George Jr gave another speech. The market dropped another 200+ points in direct response.

It is irrelevant whether the economy is sluggish, in recession, or recovering. Investors are saying, in large numbers, that government response is favoring people who are the problem. George Jr's solutions ignore reasons for this problem - many of whom are his biggest campaign contributors.

Fundamental to the problem is an accounting industry that sets their own stanadards: GAAP -via their own FASB. The accounting industry does not even have to be responsible for their own work! Such problems are not widespread in the IASB which sets international standards for accounting. For all the worry that corrupt accounting practices are worldwide - where is the evidence? Evidence is in waves only in US corporations, many using practices deemed acceptable by GAAP, intentionally deceive their investors and even their own Board of Directors for self serving interests of management.

As if it was not bad enough, Harvey Pitts of the SEC appears disinterested in addressing widespread corporate fraud causing demands for his resignation. Will that happen? If yes, it will occur months later when all this quiets down. However, based upon George Jr's own response (actually no response), it appears unlikely - which was just another reason for stockmarket downturn.

Today something happened. The market went up with first indications that government might do something to address the problem. Investors are so disappointed with George Jr's response that a few pieces of good news caused the highest one day upturn in the market in 15 years - and the second highest point gain ever on the DOW.

First, congressional Republicans finally decided to side with inverstors rather than with corporate corruption. The House and Senate agreed in committee on a bill to address some problems. Incomplete but at least it was something from a Republican dominated government that outrightly lied - foolishly said last Monday that everything will get better now that Worldcom declared bankruptcy. We still have more bad news coming, but at least someone in government thinks better of honesty in American accounting practices. Congressional Republicans have stopped protecting criminal actions - and demanded some responsibility from corporate management. The laws in that bill are really trivial - do very little to address the problem. But congressional Republicans conceded because most of America (according to polls) is saying what is in this post - address corporate corruption now.

Second, in Congressional testimony today, it appears that Citigroup and J.P. Morgan Chase were not intentionally involved in the Enron coverup. Another reason for an upturn.

Third, evidence is starting to emerge that some companies such as ExxonMobil have been honest in their bookkeeping and that 3M is even being profitable - more good news.

Fourth - a coup de grace. Adelphia executives who stole $millions, maybe with cooperation of their accounting firm, were hauled off in handcuffs. Those handcuffs pictured on screens all through Wall Street that finally said, "maybe somebody in government *does* care to address corruption even if the president and his SEC Chairman do not".

Those who said, "It's called a correction" were only fooling themselves. If the market needed correction, it would not have been so much so fast. If it was only a correction, then a little good news about government responding to outright corporate fraud would not have created this 15 year record gain. Two glaring reasons why calling it a correction was rediculous. The market is so frustrated with government's response to outright corruption that only minor good news resulted in an almost 500 point gain in only one day! It demonstrates how 'out of touch' investors consider government in general and the George Jr administration in particular. This downturn is directly traceable to government's no response to standardized corruption - including by some of its own people. (Testimony earlier this week said Cheney clear knew every detail of accounting fraud in Haliburton.)

As Sycamore noted, economic fundamentals are not bad AND are slowly improving. There was no reason for a correction this fast and this deep based upon market prices or the economy. A market meltdown and corresponding one day gain demonstrate that the reason for a bad market is the administration's and Republican party's response to obvious and widespread corruption. Making a little effort to address corruption nearly set records on Wall Street. Investors are that starved for any government reponse to the problem.

Don't get cocky. There are probably more down days ahead. Today's news was really minor and mostly psychological. When the market realizes that, it will slip back some. More bad corporate news may be forthcoming. The market may rattle about at its lows at least for a week - maybe more. But at least someone in government wants to hold corporate criminals responsible - something that was not apparent last week by everything that George Jr said.