Black Monday
Is tomorrow, November 5, 2007, the day the stock market finally collapses? As I write this on a beautiful Sunday morning in Northern California, Citigroup is holding an emergency board meeting, to plan the resignation of their CEO, and most probably to sort through the collateral damage of their collateral debt obligations.
Citigroup couldn’t wait until Monday, to send out a press release, announcing that their Prince of a CEO was going to spend more time with his family? I haven’t been this nervous since August of ‘07, when the stock market should have collapsed, and the economy nearly disintegrated.
The reason why the U.S. economy did not implode back in August, was due to massive (and continuing) infusions of capital from the Federal Reserve, European Central Banks, Arab and Chinese governments, and Fed rate cuts.
All the grand intervention did, was buy time, and with Citigroup’s announcement of an emergency board meeting, it appears that time may be up. This is an extraordinary event, in a time of great uncertainty, one that may not register on main street, but can send shock waves through Wall Street.
And it appears that Americans, with their seven second attention spans, are incapable of learning from history, and that we might as well stop teaching economics in our universities.
Citibank helped bring about the stock market crash of 1929. It was Charles Mitchell, CEO of National City Bank (later re-named Citibank), that opened the speculation door to individual investors. The crash of 1929 didn’t happen in one day.
In the stock market crash of 1929, their was an initial drop on “Black Thursday”, Citibank and other large Wall Street investors poured money into the stock market, to try and restore confidence. Five days later, on “Black Thursday”, the stock market collapsed.
Are we watching a bad Hollywood sequel, of a horror film, that first ran almost a century ago? I don’t know? But let’s ask none other than, Chairman of Citigroup William Rhodes, who stated back in March to the Financial Times “What is clear to me is that in the next year a material correction in the markets will occur.” From The Economist Blog titled “Citibank warns of crash. But why?”
That’s the history - here’s the economics.
Economic cycles dictate that their will be stock market crashes and recessions. Whether they are short-term and soft, or long-term and hard (i.e. Depression), depend on the nature of the response. We have already seen, since August of 2007, swift and massive intervention to keep the economy going.
The question is how many more interventions are possible before time and capital runs out?