Wall Street Gets Whacked by Chi-coms

One of the highlights of Wonker's peripatetic excuse for a career was his stint as a stockbroker, circa 1978-1984. It was a tough market to operate in, as nearly this entire period was drowned by the massive bear market caused by the idiotic policies of America's worst President ever, anti-Semite-in-Chief James Earl Carter. Ah, those were the days...16% mortgages, Bunky and Billy Hunt getting wiped out of their near corner of silver bullion on Silver Thursday (March 27, 1980)...

It took then-Fed Chair Paul Volcker and President Ronald Reagan years to clean up the mess and bring us out of "stagflation" and into some measure of prosperity.

Even so, life ain't perfect on Wall Street as we learned during the Black Monday Crash of 1987 the Tech Panic of 2000 (aka the "dot.bomb") which inaugurated the nasty but shallow Clinton (not Bush) Recession of 2000-2001 which was exacerbated by 9/11.

Since September of 2001, however, after going to sleep for awhile, the market and the economy have come roaring back under Bush II's economic policies. But the inability of the past two administrations to teach the Chinese Commies some of the saner elements of capitalism came to a head today, compounded by a rapidly deflating subprime lending environment and some blithering idiocy on the New York Stock Exchange.

Yep, the market waterfalled violently this afternoon, sending Wall Street traders into the alleys, bleeding from the eyeballs at what seemed like an instantaneous drop in mid-afternoon of 200 points. In a matter of seconds, the Dow Jones industrials, already pummelled by the Chinese decision to get nasty on credit and speculation without warning anybody (including their own people), seemed to be swan-diving back to 1929, albeit from a much higher peak.

Turns out that the fabled "circuit breakers" and maybe a few other things, conspired to cause massive miscalculation of the averages for much of the day today.

It will be interesting to see how the chief American villain, the NYSE, explains its way out of this one, or how the small investors who got hosed by a roundhouse punch they never saw coming will react tomorrow morning.

Jim Cramer, the wild man of Wall Street, but actually quite a savvy trader as far as this ex-pro is concerned, nailed the problem on the exchange this afternoon:

You didn't even have time to panic.

The system failed us, breaking down too fast for you to panic.

We totally collapsed between 2 p.m. and 3 p.m. ET, dropping 200 points. All the circuit breakers and all of the rules that were put into place years ago after 1987 just utterly failed.

Then we had the backdraft, and it happened so fast we don't yet know how it went wrong. But it did, with the sellers' heavy tinder. Maybe that exacerbated the hard-selling ETFs. Whatever it was, the wick caught and then flared -- when we thought we were fireproof.

The buyers, and there are plenty of them, simply couldn't get to the floor fast enough to buy and put out some of that selling.

There you have it. Amateur hour with the Chi-coms, who clearly didn't mean to send their top trading partner into a recessionary mood (even if they don't actually like us much), but did their best to accomplish just that with their inept and almost comically thuggish move against their own excess after doing nothing seemingly forever. Which, combined with cranky NYSE software and ruthless and stupid hedge funds cranking computerized sell orders until there was no inventory left to sell, gave Wall Street a bigger case of the willies than bin Laden's goons could generate in a decade of terrorism. The market has been a bit off the wall lately, sinking on low volume, always a bad sign of impending indigestion. But today's action was like a dose of Metamucil gone wild.

Cramer laments the passing of the perfectly useful "trading halts" that used to protect investors from this kind of craziness back in Wonker's days of manning the phones to tout the analysts' latest hot picks:

In the old days, when things were sane, we would have had order imbalances, a stoppage of trading. We didn't get that today. We got nothing. We got nothing but a gap, and it reminded us of the old days, when we used to have to have bids way underneath. In other words, be ready to buy because of the whims of sellers.

But there's another difference now. You can force the market down. The old rules put into place in the 1930s, the ones that were meant to stop motivated sellers from breaking the market are all gone now, taken out by a complacent Securities and Exchange Commission that never dreamed of what could happen today.

Gradually, since the days of Carter, actually, not Reagan as everyone thinks, the financial markets have been gradually been de-regulated to the point that a lot of the good stuff the Feds put in place to protect people since 1929 has been eliminated.

Wonk still loves to cop a good trade, although he nearly had a coronary today and took a pretty significant bath by the close. But Wonk can take it, albeit not without uttering some colorful metaphors. What is far, far more worrisome, however, is the average American's near-blissful ignorance of fairly recent history. We're supposedly much-improved in the arena of sophisticated financial controls today. But with predatory lenders hawking (until recently) subprime products that virtually begged for marginal lenders to be foreclosed, thus weakening the lending sector; and with massively scaled computerized trading programs subject to selling (or buying) panics triggered by a (very large) Third World country's lack of marketplace grace and finesse, you get once again a sobering reminder of just how delicate the structure of Western civilization has become.