Obama's speech the other night sounded great, if you paid no attention to the words, which were a lot hair shirt and class struggle guff. Then came the budget announcement, in which those who did not really believe the new president is determined to move the country hard left finally had to face the facts that he means it -- the class warfare, the redistribution, the anti-business, anti-capital worldview -- all of it. Thursday we had attacks on health care and finance, Friday the 40% dilution of Citigroup's common equity. (Citigroup should henceforward be known as Citi Government.) The Dow loses 100 points every day, which wasn't so bad when it was at 14,000 but smarts a bit when it's at 7,000.
One of the most interesting fields of finance is "real options", not the familiar listed options but the features of optionality that are embedded in so many facets of everyday life. It helps me to think of our current predicament in terms of real options: in the face of 100% uncertainty and 200% hostility, the option to withhold my money for investment and keep it in my hip pocket instead is more valuable than ever.
Multiply that attitude by millions of investors and business people, and this economy is heading for a total breakdown.
One half wonders whether the Obama administration actually wants that breakdown in order to be able to ratchet up the class warfare even more . . . "Look, we offered them $3000 to hire new workers, but they laid of people and moved to China instead -- these rotten business people are your class enemies, let's fix them good!" That then is a pretext to move things rapidly in an even more revolutionary direction. It was chief of staff Rahm Emanuel who said crises are great opportunities for rapid and radical change.
On the other hand, the masses of the American people did not really vote for socialism, they voted for charisma and smooth talk and racial reconciliation. Democrats in Congress, who stand for election every two years, are showing their misgivings that when the people see where this is going, how rapidly we are heading towards breakdown, they may change their minds.
What the capital and business class of this country wants, apart from not being demonized and shaken down, is clarity on bailouts, budgets, and the very integrity of the system that produced the wealth and is now under attack for its pains.
There's a sense that the driver does not know the way to go but is driving 110 miles per hour trying to get there. Until we get clarity, or dare we hope a touch on the brakes from a Congress that realizes this is an electoral disaster in the making for them, capital will strike.
The Household Initiative Plan is posted at Household Initiative Plan Blog
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