From The Dissident Voice
By John Kelley

Yesterday, the Dow Jones dropped 300+ points, down over 400 at its low for the day. Today, it will probably be just as volatile as it has been, but the shape of things to come is not good. We can only ride this irrational over-exuberance about the market for so long before we have to pay the piper. It’s quite simple. While the market was setting a new record July 20th by breaking 14,000, the actual financial underpinnings of the country were growing quite bleak.

Virtually unreported over at the Washington Post, Michael J. de la Merced was citing a significant crack in the debt dike preventing a flood of defaults on leveraged buyout deals. Most of the run-up on Wall Street has been based on the idea that there is an unlimited amount of debt that can be piled up to buy and flip companies, kind of like the housing market speculators. In fact some of them are the same people. To them the important thing is that they collect fees at every transaction along the way.

What the general public doesn’t understand is that the wealthy have been taking their extra money from tax breaks and investing it in speculation. The theory of trickle down economics is that the rich will invest it in increased production capacity, hire more people and generally lift everyone (“a rising tide lifts all boats”). But, true to human behavior, that’s not what happens. Instead, when people have extra money over their needs they tend to invest it in more speculative investments because the potential loss won’t affect their lifestyle while the potential gains are higher than from a more stable but slow-growing investment. In other words, a cabbie might make a bunch of $5 bets on long shots at the track and even may splurge on the Trifecta but a CEO can afford to make $10,000 bets. Both are gambling an amount that, if he loses, doesn’t impact his lifestyle, but if he wins, he wins big.

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