February 18, 2009--Dow 7,000

Last week when Treasury Secretary Tim Geithner announced the outline of the Obama administrations financial institutions restructuring plan, it fell on more than deaf ears--the Dow Jones average plunged about 400 point. Yesterday, while President Obama was signing the recently passed stimulus bill, it fell another 300 points. (See New York Times article linked below.)

In both cases, chatterers on CNBC and elsewhere were unanimous in saying that "Wall Street was delivering a vote of no confidence” on the economic policies of the less-than-month-old administration.

I say, "Phooey."

It was a vote of no confidence on Wall Street itself. Since when has the Dow been the arbiter of macroeconomic policy or, for that matter, anything meaningful?

In fact, it is fundamentally self-referential, more a report about the state of Wall Street itself as the world's largest and most manipulated gambling casino.

Tell me how when you buy a stock you are “investing,” as it is claimed, in a particular company? Isn’t it true that you are purchasing that stock from another so-called investor rather than from the company itself? The only one who did any investing is the person who bought that stock when it was first issued by the company. After that, it passes from hand to hand among traders. Not investors. So let’s clear up that fantasy.

And the price one pays for a stock many years after it was first offered is rarely pegged to the current fortunes of the issuing company. If it were, Proctor and Gamble, which is still operating about as profitably as in the recent past, would not have seen the “value” of one of its shares drop from $75 each a year ago to just $50 yesterday. So let’s also clear up the claim that the value of stocks is pegged to a company’s performance.

What we’re left with then is the fact that stock market “investors” who, since they are not trading anything of intrinsic value, are in fact gamblers and hustlers who would have been run out of town long ago if they had been operating on the streets of my old Brooklyn neighborhood.

Not part of the change we need are economic policies that will make the Street happy, but rather those that will make it unhappy. Unhappy and diminished sufficiently so that they will be exposed for what they really have been up to and as a result scaled back in size and stature so as to no longer serve as the bellwether for the larger economy.

I’ve been hit hard too and know there will be a further price to pay if and when the Dow continues to plummet. But it will be a price worth paying to flush out all the corruption and excessive greed that has been part of what has infected our economy and place in the world.

On CNBC yesterday, though I forget who it was, a CEO of a large investment firm was decrying the restrictions on executive compensation that were written into the stimulus bill at the last minute. He was moaning that if these remain in effect, it will drive all “the talent” out of Wall Street and the banking community and won’t that be a bad thing.

I had two reactions—if in fact all these folks leave on their own momentum (sure), just where will they next deploy that talent? On shovel-ready projects in their hometowns after moving in with their parents, assuming they haven’t lost their house to the bank?

And, if these guys (mainly guys) are so talented, how come they made the mess we’re in and from which we are desperately trying to recover?

It’s time to redirect our economy toward more productive work and real ventures. We need to exorcize from the system those who have puffed up and then live high on the bubbles they create out of insubstantial air. Let’s create some real businesses. Let’s build some things.

Things are ugly and will get uglier still, but what radical surgery isn’t?