Cathering Austin Fitts: Factors Driving the Stock Market Down

News & Commentary,

October 10, 2008 at 9:10 am

There are numerous factors driving the stock market down. Here are a few important ones:

1. Debt overhang: We have issued far more debt than we can pay back. This is being used, among other things, to reengineer fundamental laws, governance and rights globally. The debt overhang and the governmental changes it is being used to engineer (financial coup d’etat) are bad for stock markets and broad-based private property rights.

2. Absence of good pricing data: Large financial institutions have no way of accurately pricing outstanding risk of a significant amount of complex instruments. Among others things, history is proving that they cannot trust the chain of trust: bankers, auditors, lawyers. As a result, their ability to transact and loan to each other freezes. In one sense, think of this as the price of the absence of integrity within the system.

3. Economic warfare: We are experiencing the first planetary “pump and dump” — we are now in the dump phase. The largest or craftiest financial institutions with access to and control of sovereign government intelligence and resources are able to subsidize themselves and gain market share and control of tangible assets by driving down shares of other financial institutions and companies.

4. Individual investors are leaving the party: Remember when your parents would not allow you to go to a party that did not have adult supervision? Given the refusal of the government to use enforcement powers to enforce the laws or to protect market integrity, the stock market lacks the equivalent of adult supervision.

5. Corruption tax: Centralization and corruption are expensive for everyone but the insiders … and the number of insiders is shrinking.