It's A Deal

October 24, 2008

Ideas Go From Bad To Worse

Shut the markets down? Get real.

Nouriel Roubini, a professor at NYU, yesterday made a speech in London that has attracted some attention. In it he said governments around the world may have to close financial markets if the steep slide in global indices continues.

Seriously, that’s what he said.

Now, I’ve followed the good professor’s work from afar for a while, and while I surely don’t agree with everything he says, there’s no doubt he’s a super-bright guy and passionate about his work. Great pedigree, too: former adviser to the White House and Treasury, Yale professor, yada, yada, yada.

But this is ludicrous. To close the markets for "a week or more" is about the single worst idea I’ve heard throughout this entire mess, and there’s a boatload of competition for that award.

Are things out of whack, if not downright frightening? You bet your 401k they are, but stopping trading isn’t going to make things better. It’s like the equivalent of the brilliant "no shorting" rule, but on steroids. We know how well that idea worked out.

"We have reached the scary point where the dysfunctional behavior of financial markets has destructive effects on the financial system and - much worse - on the real economies," he says. Yep. The only thing more dysfunctional would be to just shut down. And remember, there are already circuit breakers in place to stem the onslaught of a vicious downturn; if we get a 10% drop in the Dow before 2 p.m. ET we stop for an hour, if it’s between 2-2:30 there’s a half-hour hiatus, and if it happens after that there’s no halt to trading. A 20% intraday selloff brings longer halts.

And to tell us how important Roubini’s call is, some in the media let us know that he predicted this global crisis, so we have to listen. Well, he did in fact call it ... in 2006. That puts him somewhere in between Stephen Roach and Alan Greenspan. A prescient call indeed.

Look, no one likes losing money, watching friends and family lose their jobs, and spending time worrying about their own work situation. But aside from that real-time pain, the worst thing that’s going to come out of this is regulation that does as much harm as it does good, and if we’re not careful (indeed, if it’s not already too late), government-steered manipulation of the markets.

Shutting down? A really bad idea.