Response to Comment

I take a look at this - which I find hard not to believe is not a result of the bursting of the real-estate/housing bubble - and what I perceive to be the idiocy which is causing successive loss after successive loss on Wall Street in recent days, and immediately think in terms of 1929's foolishness all over again. I remember Alan Greenspan's comment when the market was on the rise - "irrational exhuberance", he called it - and I see much of the same irrational action today, just in the opposite direction.

Unfortunately the issue is that the foolishness is the run-up in prices, not the subsequent drop. Once the idiocy is apparent, there is nothing rational markets can do but price down the assets involved. Without reaching out to the 1929 crash, we have the much more recent 2000-2002 stock market collapse. Collateralized Debt Obligations (CDO) simply became overpriced due in large part to an overreliance on mathematical models that seriously understated the possibility of default. If you lend money to borrowers who cannot manage 3% down payments and need interest-only loans to "afford" payments and who are relying on unrealistic appreciation of their houses, what do you think is going to happen? Duh! Massive default, resulting in a massive drop in value of the CDOs. And that's what we're seeing now. And what should happen to a company that foolishly invested tens of billions of dollars in these CDOs that are now close to worthless? Exactly what we're seeing - their balance sheets are ravaged, their income statements disintegrate, their CEOs are terminated, and some of their other assets are liquidated in a fire sale. I do not view it as reverse irrational exhuberance, but rather a rational pricing of companies that were irrationally priced before.

Take oil, for example. It once again broke the $100/barrel benchmark, based on [...] "fear" that violence in Nigeria - which has not impacted its production of oil - might do so. Say what? I found the following on Bloomberg: "Not one drop of oil was disrupted when Benazir Bhutto was assassinated last week, but prices surged," Mueller said. "Anything that can is sending the market higher. That's what happens when you have a jittery market." Huh?!? So let me get this straight: Nothing real or tangible has actually happened which directly impacted oil supplies - but we hammer its price ever wildly upward because ... of expectations? Fears? Psychological BS??? Whiskey Tango Foxtrot!!!! That tells me we are actually not working with what a thing is worth - which, to me, is the foundation of what free-market capitalism means - but instead catering to the psychological well-being and/or unreasonable reactions of people I must assume are fundamentally insane (given the volatility of what they're acting upon) and allowing such people to determine these things for ... well, pretty much everything. Uh oh.

Something to remember is that all investors like predictability. The real (even if unlikely) possibility of disruption is going to cause a type of hoarding mechanism to kick in, driving prices higher.

Although your point about the resulting insanity of prices is well taken, I think we have a fundamental disagreement over the phrase I've underlined. In a completely capitalist free market, what exactly is a thing "worth"? Exactly what willing buyers and willing sellers agree to trade that thing at, no more and no less. So if oil prices are bid up because morons panic without need and want to buy more, then the higher price is exactly what oil is worth.

Is this really what (and who) we want controlling our economic viability and well-being? Regrettably, I do not have a solution. But it sickens me to watch the markets move for no good reason, know that especially some of the ridiculous trends we've seen recently hurt those people everywhere who depend upon them for their every-day survival, and see signs which tell me no one's paying attention to Santayana's maxim as regards what happened in the late Twenties and early Thirties. Sorry for the rant. But I must be honest and say I find almost everything about what I see in the markets, these days, as utterly laughable. Do any of the people there have so much as two undamaged neurons to rub together? I guess the same goes for the morons who runs some of the companies showing the most egregious foolish behavior.

In my mind, the issue of mismanagement is a completely different one from the issue of prices. The institutions I've been posting about (Citi, Morgan Stanley, Merrill Lynch) are supposed to be the nation's premier investment institutions. It should go without saying that a large part of prudent investment is proper risk management, but the common thread in all these write-downs -- which have passed the $70 billion mark at this point and will certainly surpass $100 billion before all is said and done -- is a complete breakdown in the risk management process. As far as I'm concerned, it borders on the criminally negligent. That not all these executives have been fired, that those who have been fired have walked away with multi-million dollar packages, and that the boards have not been held accountable, is appalling.

Any ideas? Something sure would be nice to settle the mind that there is something more reasonable than what I believe I see ...

Unfortunately the only idea I have - administering IQ tests before you allow folks to invest - is unworkable for a variety of reasons.