Today was the seventh trading day since John Boehner walked out of talks with Barack Obama at the White House. That move made it clear that the House speaker would not risk alienating the Tea Party and that if a debt default were to be averted, the president would have to capitulate on virtually all issues or defy Congress by claiming the debt limit legislation was unconstitutional. He chose to capitulate.
FLOYD NORRIS
Notions on high and low finance.
This is also the seventh consecutive session that the Standard Poor’s 500-stock index has declined. The total fall for the seven days is 6.8 percent.
This is something that Wall Street did not see coming. It took for granted that something more reasonable would be worked out. To make it worse, the economic data has turned much bleaker, highlighted by last Friday’s revisions in the gross domestic product. In normal times, the politicians would be vying to come up with plans to stimulate the economy. Now that seems to be out of the question, and there is more talk of a double-dip recession than at any time since the last downturn ended.
The last time I can recall Wall Street’s being so wrong about what the government would do was in September 2008. Lehman Brothers was collapsing, but the Bear Stearns precedent provided assurance that the government would not take the risks to the financial system inherent in letting a big bank fail.
Over the seven sessions after the Lehman bankruptcy, the S..P fell 5.1 percent. It was a much wilder ride than this one, with two days when the market lost more than 4 percent and two days when it rose more than 4 percent. The market would go on to lose much more. By contrast, the largest decline in this string was today’s fall of 2.6 percent.
Wall Street was so very wrong in 2008 because ideology trumped caution in Washington. Sort of like what seems to be happening now.
Article source: http://feeds.nytimes.com/click.phdo?i=c0cdf988f1eb71326d15687fb8ffc34a
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