DON’T PANIC (Again !)

“DON’T PANIC” – Words inscribed in large, friendly letters on front cover of The Hitchhiker’s Guide to the Galaxy, the ultimate compendium of practical knowledge on practically any conceivable subject, and the most popular book in the known universe. This is partly because it is slightly cheaper than the Encyclopedia Galactica, but is mostly because it has the words Don’t Panic inscribed in large friendly letters on it’s cover.”

Look who is telling us not to panic again: The WSJ Op Ed page!

“So there is no reason for stock market panic, nor for handwringing in the credit markets about an imminent default. Indeed, with the Senate finally — after months of dithering — passing legislation on Friday for a strong new Fannie and Freddie regulator, there is hope that the government will finally be able to rein in the excesses of these enterprises.”
There Is No Reason to Panic

Of course, the last time this self same page told us not to panic, it was Bear Stearn’s David Malpass exhorting us not to Panic About the Credit Market:

“Equity markets have recently lost over $2 trillion in the U.S. and even
more globally — many times the likely amount of mortgage and corporate
debt losses in the foreseeable future. This is in part a correction
from the sharp global equity run-up through mid-July. Current prices
still signal growth ahead.”

How’d THAT work out?

How come every time a WSJ editorial tells us not to panic, we learn in subsequent hindsight, that Panicking is pretty much exactly what we should be doing?

By Panic, I mean pulling out all the stops to make sure any virally malignant, planet destroying financial cancer does not metastasize any further, mangling the good and the bad alike (or destroying a planet to make way for an interstellar bypass)?

Is there any reason to expect this chuckle-headed plea is going to turn out any different than the last chuckle-headed plea did?

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Sources:
There Is No Reason to Panic
PETER J. WALLISON
WSJ, July 14, 2008
http://online.wsj.com/article/SB121599497892249615.html

‘Don’t Panic About the Credit Market
DAVID MALPASS
WSJ, August 7, 2007
http://online.wsj.com/article/SB118645120890190059.html

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What's been said:

Discussions found on the web:
  1. Barry Ritholtz commented on Jul 14

    Quotes mostly from memory, with a little assistance from around the web.

    If anyone has a better verbatim, let me know!

  2. MitchN commented on Jul 14

    Is there any reason to expect this chuckle-headed plea is going to turn out any different than the last chuckle-headed plea did?

    Rhetorical, of course. Here’s another one. Do you think Hank Paulsen ever thought he would grow up to be captain of the Titanic?

  3. MitchN commented on Jul 14

    Damn lag — worse than a cheap digital camera. You get my point.

  4. Pool Shark commented on Jul 14

    Perhaps God’s final words to his creation would be appropriate at this time:

    “We apologize for the inconvenience.”

  5. scorpio commented on Jul 14

    i was happily enjoying the crash in financials from the treadmill this afternoon when crazy Charlie Gasparino, the bagman, came on to say Dick Fuld was considering taking LEH private, because it’s obviously worth so much more than it’s trading. i wish Charlie Gasparino would take himself private and stop polluting the public airwaves, along w the rest of the losers on CNBC.

  6. BobC commented on Jul 14

    The irony here is that one of these times a “don’t panic” piece will be written 3 days before the real bottom and for years later the author will be heralded as a financial genius.

  7. Jim Haygood commented on Jul 14

    Not only is there no reason to panic — but also, the U.S. economy is fundamentally sound. And recession is a remote prospect. The government told me so.

    Celebrate the prosperity, comrades! Ignore the doom-mongers and naysayers. Every day, in every way, things are getting better and better. AREN’T THEY!!

  8. David Merkel commented on Jul 14

    Funny, I went down the same path at my blog after reading a piece of yours, Barry:

    http://alephblog.com/2008/07/11/in-large-red-friendly-letters-it-reads-dont-panic-gse-edition/

    Somehow, I ended up adding in the word “red.” Now I know that is spurious.

    But as far as the crisis with the GSEs goes, it is containable if the regulators are aggressive enough. What I fear here is that through a series of half measures the solvency issue will not be solved, and the problem will get worse.

    ~~~

    BR: Dave, I saw that — but this last OpEd, coning on top of Malpass’ debacle, finally sent me over the edge.

    At least I know I am sub-consciously ripping off quality stuff !

  9. Todd commented on Jul 14

    I’m not panicking. I’m just selling when I think I should be.

  10. Gus Ayer commented on Jul 14

    BEST POST EVER,

    My only question is whether you have two heads.

  11. KABOOM! commented on Jul 14

    what is comical is that cnbc references stuff during the day like “banks in trouble”, then says “we’re not going to give them to you for fear of creating panic”. i guess that’s why god created dealbreaker.com. we’re setting up for an atomic donkey punch for the broad tape…looking forward to buying some names a lot cheaper in the coming days as the bottom falls out and we get a couple of more bank failures.

  12. dukeb commented on Jul 14

    Reminds me of the little red sign with white engraved lettering in an elevator I used to ride:

    “In the event of an emergency, do not panic. Press the button marked ‘PANIC’ and wait for assistance.”

    I kid you not.

  13. Ferox Obscurus commented on Jul 14

    Why would I panic?

    I have my towel with me.

  14. a commented on Jul 14

    http://www.youtube.com/watch?v=cEBHLjc4DQA

    Red alert! Red alert!
    It’s a catastrophe
    But Don’t worry…..Don’t panic
    Ain’t nothin’ goin’ on but history, yeah
    But it’s alright, don’t panic

    And the music keeps on playin’ on and on
    And the music keeps on playin on and on (repeat)

    On and on
    On and on
    And the music keeps on playing on and on ( repeat )

    The way you shake, shake, shake, shake
    The way you shake, shake, shake, shake
    Baby

    Yippie-yay-yay-yay-yo
    Yippie-yay-yay-yay-yo
    Yippie-yay-yay-yay-yo
    Yippie-yay-yay-yay-yo

    On and on
    On and on
    And the music keeps on playin’ on and on ( repeat )

    And the music keeps on playin on and on….

  15. Andy Tabbo commented on Jul 14

    That David Malpass letter in Aug 2007 will haunt that guy forever. The great part of it is that he was the Chief Economist at Bear Stearns. There’s so much irony in that OpEd…it just oozes.

    How does that guy even show his face on TV anymore?

    – AT

  16. johnnyvee commented on Jul 14

    If you can keep your cool while everyone else is panicing, then you’ll be fine. However, the exception to the rule is: If everyone is panicing and your not, maybe you don’t understand what is going on.

  17. larster commented on Jul 14

    Why would anyone panic? We have just socialised the mortgage business, given hundreds of billions to the investment banks, rescued a large bank that wasn’t on the FDIC watch list, we are facing the bankruptcy of all major US air carriers, we are facing the bankruptcy of GM which will bankrupt the PBGC, and we are contemplating starting a war w/Iran after borrowing money to fund the two wars that we are in now. This could not happen to the US of A. Well, hello, it is happening and w2e also have noone at the helm with half a brain.

  18. Alex commented on Jul 14

    It always amuses me, this insistence of tying some extreme emotional state to a negative view of a situation. If you are concerned, then you are panicking…so stop it damn it! The person doing believes themselves clever, as they are rhetorically forcing others to throw out caution, as it is “panic” and therefore irrational.

    But they are not so clever really. Deep down, they are (of course) panicking, and this is all a desperate bid by their egos to gain control of themselves and unraveling circumstances. Pitiful really.

    “Stay Calm! All is Well!!!!” is funny because it is strident, yet pathetic and ineffectual. I have often thought the WSJ was funny…but not enough to subscribe as a source of entertainment.

  19. abort commented on Jul 14

    and Mizuho Financial Group Inc. led declines after the Nikkei newspaper said Japan’s top three banks hold more than $40 billion in Fannie Mae and Freddie Mac debt. Cathay Financial Holding Co. slumped in Taipei after saying it held debt issued by the two largest U.S. mortgage lenders. Matsushita Electric Industrial Co. led technology shares lower after Nikko Citigroup Ltd. downgraded the stock.
    The next huge financial meltdown??
    http://wsj.com/markets/US?story.index.htm

  20. kos commented on Jul 14

    Equity markets have recently lost over $2 trillion in the U.S. and even more globally — many times the likely amount of mortgage and corporate debt losses in the foreseeable future. This is in part a correction from the sharp global equity run-up through mid-July. Current prices still signal growth ahead

    Will the dow Retest 5,000?

    large caps into small and mid, it has longer-term bullish implications and doesn’t bode very well for the masses who seem to be looking for 1300 on the S&P.

    I noticed even the bullish Carl Fu

  21. Vermont Trader commented on Jul 14

    Every night I wake up in a cold sweat.

    I am scared I am going to miss the opportunity of a lifetime by not being short the market if it all falls apart.

  22. Bruce commented on Jul 14

    No panic here, but I do think it is “different this time”…and I don’t see a way out of this without serious financial problems for quite a while…

    But I am healthy, happy as a dead pig in the sun, and find our problems here just very interesting….but I am shielded now from real financial worry, I don’t know how I’d take it if I had small kids and was making 30k a year….

    BTW, when someone says “don’t panic” who are they talking too…us, or more likely, themselves…?

  23. Aurora Borealis commented on Jul 14

    No need to panic! Just hard labor and harder taxes and some day the debt to China will be paid. Bush, Paulson and the senators have finally discovered their inner communism.

    State capitalism rules again.

  24. John commented on Jul 14

    I like this post from Kevin Depew over at Minyanville discussing Fannie Mae and Freddie Mac (I probably should have put on the On-Topic Post below, but it’s getting late):

    http://www.minyanville.com/articles/fannie-freddie-fnm-fre-GSE-government/index/a/18004

    “There are two misleading statements that appear in virtually every mainstream media article on the two companies:

    1) Fannie Mae and Freddie Mac are still able to borrow money, so fears of their collapse are based on rumors and innuendo.

    This is a very misleading statement. It is not about simply being able to borrow money. It’s about being able to borrow very cheap money and then leveraging up that borrowing ability to make a profit for shareholders. That is the core problem at the GSE’s. Their business models are no longer working due to the reality of the housing bubble unwind.

    2) Fannie Mae and Freddie Mac are adequately capitalized.

    This is another misleading statement. Technically, based on the Office of Federal Housing Enterprise Oversight (OFHEO) requirements, both companies have adequate capital cushions. But that’s like jumping out of an airplane without a parachute and arguing on the way down over whether your shoes have the right government mandated soles. Yes, according to OFHEO guidelines, Fannie and Freddie have the right soles. But put in context, those shoes aren’t going to be of much use when their feet hit the ground without a parachute.”

  25. Joe Klein’s conscience commented on Jul 14

    David Merkel:
    Knowing how this administration likes regulation, I think things won’t get any better till Obama(if he and his appointees have the guts) takes over.

    KABOOM!:
    What I think is more damning is that they obviously don’t think the people that watch them know how to use “Teh Google!!” The list is readily available for those that know how to find such things.

  26. Jon H commented on Jul 14

    “How does that guy even show his face on TV anymore?”

    Have a heart, man.

    If not for the green room snacks, Malpass would starve!

  27. Rich Shinnick commented on Jul 14

    Ok, maybe I am bitter having ridden my SKF position merely to 160.

    BUT, I do remember a period a few years ago when I was looking at the Telco bust stocks: Lucent and Nortel coming to mind and both were sub $1.00 and I distinctly remember a Lucent purchase around $.75 that I flipped at about $1.50 and hey, the thing went to at least $4.00 later the next year, well down from the $150.00 idiotic high, but an 8 baggger from $.50.

    I remember then that all I was looking at was balance sheets since the revenue models were just CRAP, yet there was billions in cash on the balance sheets of those companies so I was just thinking some of these will survive, won’t they?

    Point being there was a time when you could have simply bought a basket figuring somebody will make it AND for the most part they all did and they never came back to SILLY STUPID 1999 PRICES, but they did survive. Look at WAMU today, an analyst bashed the stock but he DID NOT say that it was going BK, he said it would not make money for two years-price target well above where it traded today.

    Somebody slap me upside the head, but don’t a few banksbrokers look tempting to ANYONE yet?

    I do believe, and correct me if I am wrong, that Barry still has a mid 12,000 target for the end of 2008. To get there, don’t we need some support from the financials.

    Knife catching anyone?

  28. E commented on Jul 14

    Looks like the Asian markets haven’t heard the “Don’t Panic” directive. Hang Seng down 3.5% at the moment.

  29. Mich(^IXIC1881) commented on Jul 14

    I’m with you Rich, it is not WHAT you are long or short as much as WHEN you get long or short.

  30. Mike in NOLa commented on Jul 14

    Rich Shinnick,

    If you think you’re kicking yourself for selling SKF too cheap, I bailed at 150 a couple of weeks ago. I had made 25% in a few months of being patient and didn’t want to be greedy, thinking that BB, et al, would pull something that would send it plunging. I didn’t realize then that they don’t have that power as was demonstrated today: the Spring rally was not caused by the BS bailout. When it occured, the VIX was in the mid-30’s and the market was ready for a bounce. I fell for the old post-hoc fallacy.

    When I sold my SKF recently, I should have listened to Obiwan’s voice telling me: “Mike, remember the VIX.”

    I do think we will be ready for a bounce in the next week or two if the market crashes some more. VIX is already at 28.5 and was close to 29 during the day.

    I’m wondering whether to sell some short ETF’s and get long ETF’s if the VIX hits 35.

  31. Kwark commented on Jul 14

    “. . .Indeed, with the Senate finally — after months of dithering — passing legislation on Friday for a strong new Fannie and Freddie regulator, there is hope that the government will finally be able to rein in the excesses of these enterprises.” Of Course the WSJ has been CRYING for these changes for YEARS right? Oh. . . only since last week. Since the economic geniuses comprising the WSJ editorial board have apparently JUST figured this out, it’s funny that they’d expect Congress to have anticipated this disaster and have a solution immediately at hand. Not to mention the fact that this problem is only being dealt with by congress because of the abject failure of the Administrative branch of our Government. But then what else should we expect from the Administration that brought us the disaster that followed Katrina.

  32. Mich(^IXIC1881) commented on Jul 14

    Mike,
    What you’re waiting for is what everybody is waiting for. Because everybody else is waiting for it, it offers you no competitive advantage.

  33. EdDunkle commented on Jul 14

    Ok, ok, I’m panicking.

    What’s the worst case scenario? Oil goes to $500, there’s not enough money to save the monolines or Freddie or Fannie, real estate crashes another 80%, the Dow goes to 3000, peasants storm the Bastille…

  34. Risk Averse Alert commented on Jul 15

    “Is there any reason to expect this chuckle-headed plea is going to turn out any different than the last chuckle-headed plea did?”

    Yes, there is reason…

    This time things are very, very serious and it matters to Posterity that stability and not chaos comes out on top.

  35. Billo commented on Jul 15

    large caps into small and mid, it has longer-term bullish implications and doesn’t bode very well for the masses who seem to be looking for 1300 on the S&P.

    I noticed even the bullish Carl Futia has joined the 1300 fray recently.


    Are We In A Fake Recession?

    With so many wanting a major selloff from here odds are it will be a minor one.

    uly 13 (Bloomberg) — Treasury Secretary Henry Paulson sought authority from Congress to buy unlimited stakes in and lend to Fannie Mae and Freddie Mac, aiming to stem the collapse of confidence in the largest sources of U.S. mortgage financing.
    FUTURES UP HUUUUUUUUUUUGE!!

    Fascinating: will the market rally or crash more?

    http://barrons.com/markets/US?story.index.htm

  36. Douglas Watts commented on Jul 15

    Citizens !!! Citizens !!!

    This reminds me of a key episode from the 1960s Adam West/Burt Ward Batman !!! show in which the Joker robs the Gotham National Bank and escapes by emptying bags and bags of money out the windows of Gotham City Hall and creating a riot in the square below.

    Batman ineffectively implores the people of Gotham City to stop picking up the falling money and allowing the Joker to escape by saying … “Citizens … Citizens … Please Desist … Citizens …”

    While Chief O’Hara and Commissioner Gordon look on ineffectually, as usual.

  37. ScottH commented on Jul 15

    Posterity is something that should have been considered through the front windshield, not the rear view mirror. It may be a tad late to leave anything very nice at all to posterity.

    Listening to CNBC is a lot like listening to Vogon poetry … don’t do it.

  38. Dutch commented on Jul 15

    Not to panic. Short paper. Long gold and silver.

  39. Rich Shinnick commented on Jul 15

    Mike in NOla,

    Know the feeling, BTW sold my SRS position today at $111.00. I am looking at UYG, these ultra ETFs are interesting. I am thinking that if the UYG goes below $10.00 it means that Sheila Bair has become the leader of the free world. Maybe sell some July pouts expiring Friday and hope to outrun the train….

    It is interesting, you see a lot of blogging about the next GREAT DEPRESSION, but I keep thinking. Wow, a depression with HDTV and internet-what does that look like???

    For my kids sake, I hope I don’t find out.

  40. Movie Guy commented on Jul 15

    The financial cancer has already spread to the liver.

    Panic will serve no purpose.

    It’s time to prepare for a considerably different future.

  41. commissioner gordon commented on Jul 15

    Great scott, Douglas! The whole financial system facing ruin?? The Chimp, Helicopter Ben, Treasury Secretary Lurch, and Barney Frank at large?? The sum of the angles of that rectangle is too monstrous to contemplate!

    >> Posted by: Billo | Jul 15, 2008 12:20:46 AM

    Hey, Barry, why does this guy Billo fake a link to an amateurish website as a Barron’s link?

  42. charles commented on Jul 15

    IT’S A WONDERFUL LIFE
    Up here in the garret we have tv and often especially at yuletide they show this really great old movie with James Stewart and Donna Reed.

    Course everyone’s seen it dozens of times – old time savings and loan threatened with a run, saved by Stewart and the bell. Bad guy Lionel Barrymore wants to buy it out and close it so ordinary people can’t afford to buy their own home but have to rent from him.

    Then a ‘credit crunch’ – ‘solvency crisis’ or is it fraud – the money has disappeared (lost) (taken away by the bad guy). Stewart is bereft and jumps in the river – he nearly sells out!!

    In the end though an angel steps (jumps) in and… well you know the rest – everybody digs deep in their pockets to find the money to bail out the bank!

    It’s set 60 years ago and nothing like it could happen today. But as we sit here, dreaming up art stuff like paintings and video wheezes, me and Opkins (the mouse) and Spider (the spider) don’t feel as secure as we used to . No sirree not quite as secure as we used to.

  43. Ed commented on Jul 15

    Mich(^IXIC1881)

    I would agree that a lot of players are looking for a mid 30s VIX buying signal and that makes VIX as an indicator suspect.

    However in my 30 years in the markets I have lost far more money and wasted far more opportunities by assuming that the value of an indicator must now be discounted by the market than I have from continuing to use an indicator too long.

    The fact one thinks the same as other people does not guarantee your lack of competitive advantage. It depends upon how many people ,what their actual positions are (as opposed to feelings) and their ability to change them as signals develop.

  44. Baldy commented on Jul 15

    Bush was pushing for GSE reform since at least before 2005. It’s the Dems in Congress who have fought it.

  45. Mike in NOLa commented on Jul 15

    Baldy,

    “Reform” can mean a lot of things. Often it just means destruction of whatever is being reformed. His regulators and justice department certainly didn’t jump in to prevent the heads of GSE’s from running them into the ground to enrich themselves.

    BTW, Dem’s didn’t control Congress til the beginning of 2007.

  46. O’Kane Conwell commented on Jul 15

    Oh, come on Barry, why deny us a replay of screaming, shouting and over talking from the delusional trifecta of Kudlow, Luskin and Bower?
    O’Kane

  47. John commented on Jul 15

    You have to remember the WSJ ed page doesn’t really function as an objective critic of economic and political events but as an extension of the white house and RNC press offices. The other leading newspapers’ ed pages like the WAPO or NYT have their moments of idiocy but the Journal is much more consistently deranged. Some of their opinions are totally unreal. They have to fair for years argued that F/F were ticking time bombs but basically they wanted to privatize them or transfer their functions to other private entities. Can anyone doubt that had they been closed down and their functions privatized the govt would now still be bailing out the successors. The Journal doesn’t actually argue against the bailout because they realize the consequences and are actually even more terrified that there might be full nationlisation which as others have suggested is probably actually the best course. Either way the WSJ ed page could be said to belong in the Kudlow school of objectivity theory.

  48. John commented on Jul 15

    WSJ update:
    I just opened this morning’s paper and see they are advocating taking F/F into “Receivership” as a prelude privatization. Do they mean nationalization and can’t just bring themselves to say it? Btw this is not what they were advocating a couple of days ago which was injecting public money into them which they described as the “least socialistic” measure which is what Paulson has done so I don’t see why they are unhappy.

  49. zackattack commented on Jul 15

    I gotta say, I’m lost here.

    We got oversold, more oversold, so oversold it was scary. And I covered and started leaning long.

    And now we’re more oversold, the most oversold in 60, 70, 80 years.

    You can’t put it all out there short now.

    I see maybe 3 longs in the world that I like. I already have full positions in two of them. They’re still above water.

    (Throws up his hands)

  50. JL commented on Jul 15

    To quote Hitchhiker’s Guide:

    “The knack of flying is learning how to throw yourself at the ground and miss.”

    Will Paulson and Bernanke miss?

    I’d say it’s time to panic…

  51. alexd commented on Jul 15

    We are never as smart as we think we are (unless we are REALLY smart).

    The guys who have been doing monetary policy have put running shoes (made in outsourced sweatshops) onto the cows, sent them out with bundles of iou’s to walk the earth, and then are surprised when they come home. Oh sorry that is the scenario for next year.

    Meanwhile I have discovered that all the friggin rationalizing in the world does not make for an increase in value of a position, only price does. There can be really good reasons for price to go up but market participants have to realize it.

    Meanwhile I think that inverse ETFs should skip the prospectus and send a nice towel out with every purchase….

    Here’s the trick, when inverse etfs are going up the market is going down when their opposites are going up the market is going up. Back away from the screen until you stop looking at the day to day movement (what a hypocrite I do it all the time!).

    If the whole place goes into the crapper think of what things people absolutely must have, like food, medicine, energy and think of where all those babies are. You know the ones that got thrown out with the bathwater…..

    Many years ago I sat in a nice building in PA and have the privilege of being allowed to look at and handle prints of real value. They were acquired by the late Alva Thorpe who bought them for cents on the dollar during the depression. When he died he left them to the Art Museum of the City of Philadelphia which refused them because it came with his proviso that a building had to be built to contain them. So they went to the National Gallery which had a little more foresight. They must be worth a king’s ransom at this point. So buy when there is blood in the streets.

    Oh and about those wet babies that went out with the bathwater.

    What do you think the towel is for!

    Be well

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