What does the stock market do?
Monday, October 6, 2008
The purported “direct” function of the stock market, namely providing capital for promising new businesses, is all but extinct. Firms in a position to issue new stock are normally also in a position to make new investments out of their own profits, and IPOs are usually little more than a way of cashing out the initial private investors. As an investment vehicle, the stock market’s appeal is found more in rising stock prices than directly in dividends for the most part — even though stock prices are ideally pegged to anticipated future dividends.
Indirect functions are ruling the day, and the stock market’s political influence is based on its most indirect role of all — an indication of the aggregate confidence of investors. Yet even this role doesn’t quite get at what is going on with the stock market, because there is a feedback loop insofar as the direction of the stock market also affects investor sentiment. When the stock market is plummetting, then, it seems like more is happening than simply that investors are panicking — they are panicking because the economy seems to have lost faith in itself, independently of what any particular individual or group of individuals thinks.
The general sentiment of elites has obviously played a political role in every civilization, but we appear to have been the first to attempt to quantify it.
Wednesday, October 8, 2008 at 1:49 pm
Not only that, but what’s also interesting is the way that a trillions-dollar derivatives market is set up on top of the stock market, a shadow banking system as termed by Nouriel Roubini. I still think Mark C. Taylor’s Confidence Games is worth reading, despite his dismissal of Marxism and Marxist-influenced political philosophies. I also think Goodchild’s book Theology of Money is very significant.
We are seeing the collapse of the shadow banking system, and this is also bringing down the more real, visible banking system because credit and money is being destroyed much faster than it can be created. And markets are frozen because banks do not want to lend to each other because they know what kind of worthless money they all have but cannot afford to mark it to market. The US cannot hyperinflate the money supply by running up the printing presses because they would be destroyed in the international bond market. So deflation for now, until or unless US defaults on its debt and/or the whole international economy is broken. And that would–will–be a very scary world to live in.
Poor Iceland.
Thursday, October 16, 2008 at 5:49 pm
The biggest problem with Taylor’s Confidence Games isn’t even his outright dismissal of Marxist political philosophies — that, that is overwhelmingly grating — but that he seems to assume an equal amount of knowledge and disclosure of information throughout the market. I’m fine with affirming duplicity, but Taylor goes a step further than than and ignores the agency behind duplicity. This is where his allergy to Marxism comes in: he simply cannot adequately own up to the fact that materialism makes the “free signifier” considerably less free.