Market Crashes Every Second Day, And Is Frankly Pretty Tired Of It!

A lot has been said about Economists generally being pessimistic, especially with the recession dominating the headlines these days. I, for one, do not believe that this is true– one of the fundamental assumptions on which the entire field of economics is based is that people always act in a rational manner. In the face of overwhelming evidence that suggests otherwise (politics, stock markets, fashion, hip-hop, Paris Hilton), Economists choose to cling on to this notion. If that is not optimistic, I don’t know what is!

Take the stock markets, for example. I can understand that the market would crash if the CEO of one of the biggest companies admits that the $100 million of profits that the company made last year, on closer inspection, turned out to be zero. The markets, however, seem to be only too willing to crash, no matter what the reason is. Every second day you would come across a headline such as -

Bloodbath on the Bourses!!!

The Sensex crashed by 730 points today as jittery investors offloaded their shares in a state of panic after it was announced that the International Astronomers Union (IAU) had revoked the planetary status of Pluto.

I can understand Pluto going hysterical when it heard of such a thing. It would’ve been happily hanging around the Kuiper Belt thinking that it was just another day in an obscenely long year, when it got that fateful call from the IAU. “Sir, can we please take 2 minutes of your time...yadda yadda yadda...really sorry about this, but you’re only a dwarf planet now...yadda yadda yadda...no no no, nothing to do with the fact that you’re a cartoon dog, I mean, c’mon, we even named a planet Uranus!” WTF???

But I fail to fathom why the investors would get jittery about an announcement such as this, or countless other such announcements. Moreover, many of these financial institutions are the same lot responsible for the subprime crisis, when they did not find anything at all suspicious when hobos turned up at their offices, barefoot and unshaven, seeking a housing loan. “Hmmm, let’s see now...It says here that your annual income is about a hundred dollars, and you’ve defaulted on every single loan you’ve taken. Looks good enough to me! Here’s your loan. Have a nice day, Sir.”

So what is it that turns these adventurous purveyors of risk, willing to throw money into ventures where the likelihood of return is about as much as Jean Claude Van Damme starring in a chick flick, into such a bundle of nerves at the stock markets? This probably explains why just about every second number in the Sensex is a psychological barrier of some sort or the other, so that you keep reading news items such as “In the euphoria over North Korea’s missile launch, the Sensex crossed the psychological 12,654-point barrier” or “For the first time in three months, the Sensex fell below the psychological 8,943-point barrier as the G-20 summit failed to decide whether the global economy is in a recession or a depression.” 

One of the few pluses of the recession, however, has been the fact that it has ensured that you always have something to talk about to total strangers, or to people whom you would otherwise be at a loss to start a conversation with. Unless you’re in Sales, there are bound to be occasions when you don’t really have anything much to say to the other person. These awkward-silence moments can now be filled up with the question “So how’s the recession affected your job/industry?” Of course, in an Indian context, there is always cricket and Bollywood to discuss, but the recession question comes in particularly handy at business meetings, where you can’t really tell a client “In conclusion, we recommend that you segment your TA...yadda yadda yadda...in order to garner greater wallet share...yadda yadda yadda...add significantly to your bottom line. So do you reckon Asin is dating Salman Khan, or do you think even Salman cannot be that stupid as to leave Katrina?”

Another plus is that the smart-alecky investment banking whiz who was your classmate is now earning only 8 times your salary instead of the earlier 10. Even this, however, might not really be the case given the latest furore over the AIG bonuses. After announcing $60 billion in losses and receiving $170 billion as bail-out from the US government, AIG decided that the time was right to award bonuses worth $165 million to its senior management. Apparently the explanation given was that these payments were necessary to retain these well-trained and highly-skilled employees. Why, of course! These are highly gifted people – you and I could not lose $60 billion in a lifetime, try as hard as we might...and here are people who can lose that sum in a year! Obviously they need to be retained!

As a consolation, these companies could then send out letters to their stakeholders “You may have read reports in the media about your hard-earned money being squandered away in risky ventures by greedy, foolhardy and amoral executives. We would like to assure you that this is furthest from the truth. You hard-earned money has in fact been squandered by well-trained, highly-qualified professionals with degrees from top management and finance institutes.”

Remember, though – the next time you think that bringing an economy crashing down is not exactly your cup of tea, all you need to do is saunter in to the stock exchange, pick out a jittery(any) investor and whisper into his ear “Did you hear about the Finance Secretary being embroiled in a sex scandal? News is that he’s planning to hike the prime lending rate by 2% to deflect attention from the scandal.”