London Rioters Vs. Stock Market Traders: Who’s More Destructive?

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Traders on the floor of the New York Stock Exchange, August 11, 2011 (Photo: Brendan McDermid / Reuters)

Spreading chaos stokes rising fear. People rush to secure or otherwise protect valuables suddenly exposed to threat. Every 24 hours or so, mobs of faceless people converge anew to form an unpredictable, menacingly amorphous force whose destructive power strikes terror throughout society. Distraught citizens look on at the frenzy with the same helplessness as political leaders who appear powerless to halt the devastation. And each new day brings fragile hope that, somehow, the madness will finally end, while  also inspiring the far stronger anxiety that the turmoil will all flair flare up again (thanks madnessmadnessmadness!), perhaps even worse than before.

Forget about how the current London riots may resemble France’s suburban violence of 2005; the recurring waves of unrest and destruction Britain has seen in the past week are more similar to the mindless, greed-driven mayhem ravaging most stock markets these days. In both cases, the established order being undermined has suffered as much from the reactions of fear, frustration, avarice and opportunistic cynicism that have arisen as the underlying factors that sparked them. Reason, rationality, and the long-view have had no place in either. And a mob, after all, is a mob, whether clad in hoodies or tailored suits.

Before exploring that theme further, let’s break for some good (and intentionally ironic) news.

Stock markets in Europe opened slightly higher Thursday  in the wake of the mega-panic that sent bourses around the world plummeting Wednesday. That action saw the Dow down 4.6%, London’s FTSE 100 off 3%, and the Paris CAC 40 5.45% lower. What explained the dramatic contraction? It wasn’t because all-wise markets and their infallible nose for the true state of business and finance allowed them to see through the falsely rose-colored lenses through which world leaders are attempting to project the Western world’s miserable economic state. No, instead they just heard stuff that scared the wee-wee out of them, and stampeded like a herd of cattle that figured the shadow of a cloud passing overhead was the end of the world. Turns out markets are just people, and people can be pretty stupid and self-defeating at times. Moo.

And that is the wider bad news mitigating early word Thursday that the globe’s financial Bessies had chilled out enough to resume stock grazing. It’s also what threatens to make any returned stability or gains short-lived. Because most of the activity shaking Western economies to their very core these days is shortsighted, often arbitrary, and at times utterly unfounded reaction that has more to do with greed, emotion, and utter disinterest in collective long-term objectives than with the admittedly dire economic brass tacks most countries now face. The market action that’s making Europe’s situation worse, in other words, is entirely optional, and no less so simply because its destructive force is being applied by habitually legitimate and productive actors. A mob, after all, is a mob.

Wednesday’s scenario was a case in point—and one begging comparison with British rioters. The panicked sell-off that caused the plunge of European bourses was sparked by a rumor. Yes, a rumor—like the kind about Paul being dead, Elvis still being alive, or Scarlett being able to sing. Around mid-day Wednesday, word began circulating that ratings agencies were on the verge of lowering France’s credit rating—a move that would put Europe’s second-largest economy under the same debt pressure that Greece, Spain, Portugal and Italy are already suffering. Suffering because markets have so decided (because, of course, there’s nothing automatic, obligatory or even necessarily long-term logical in the short-term attack on bonds of over-indebted countries—especially when the logical conclusion of that offensive is chain-reaction contagion that eventually brings down the euro, leaves much of the continent’s economies in flames, adversely impacts farther-flung nations as a knock-on, and leaves the U.S. looming large as the next target. Barman–misery for the house!). None of this is inevitable or ordained by ironclad rules of science or economics, but it is undermining the collective interest nevertheless. Sort of like urban violence. But I digress.

Back to Wednesday’s gossip—which, not entirely unlike the still unconfirmed reports that police were responsible for killing the Tottenham local that set off the UK rioting, sent emotionally throttled traders berserk on their own turf. As a result, they did their mirror-image version of the London hoodie maneuver: rather than boosting valuable TVs and stereos from shops without paying as their Hackney peers did, market types began the wholesale dumping of stocks they feared were increasingly worthless due to the sinister smudge of the French debt downgrade rumor. The upshot—much like an Ealing store whose goods have been carted off or burned during London’s random rioting–French banks Société Générale, BNP Paribas, and Crédit Agricole saw their share prices trampled beneath the feet of rampaging investors terrified about the heavy exposure of the trio (and the French economy in general) to Italian and Greek debt. As we know, when markets began viewing that debt as iffy at best, they started lavishly dumping it as part of the process that sent borrowing costs for Greece, Italy, and other targeted countries rising. And, of course, those rising borrowing costs created by market scorn has made it more expensive for indebted countries to pay off creditors and avoid default–an outcome that becomes increasingly likely thanks to the action by the markets  betting billions on that exact situation coming to pass. Think of it as a “their pain, our gain” arrangement, not entirely unlike the de facto mindset of the hooded lads in Clapham sporting new trainers and iPads these days.

One needn’t be a trader or analyst to feel comparing stock market actors to the criminal British youths inflicting theft, arson, and extreme violence on society is unfair hyperbole (or worse). Yet one also needn’t be Michael Moore (or worse) to think there are some valid similarities involved all the same. Officials at Société Générale, BNP Paribas, and Crédit Agricole, for example, are probably feeling as victimized as any owner of a ransacked London store. Those three banks saw 19.9%, 14.8% and 18.7% of their respective market value simply vanish at Wednesday’s closing, after having suffered even steeper losses earlier in the day. All of it because of a downgrade rumor—one both the French government and the various ratings agencies formally denied during the day. Undeterred by actual fact, however, markets renewed their pressure on those banks  and others as trading pushed on Thursday.

Better still for the credibility of markets are the press reports Thursday investigating why Société Générale was the main focus of attack. Some accounts found traders admitting they’d been influenced by a recent story—or even talk of it—in UK tabloid The Daily Mail reporting the bank was on the brink of financial ruin. The paper ran an apology  Aug. 9, saying the piece was “not true”. Apparently the markets missed the correction. Maybe markets were watching cartoons or something.

And now for the kicker: according to still unconfirmed French media allegations, the initial Daily Mail piece that—with a huge assist from traders—cost Société Générale millions yesterday was purportedly written after a journalist at the paper read a fictional summer serial in Le Monde involving an imaginary crisis at the bank. Mistaking that textual soap opera episode as an actual news report, French media claims, the Daily Mail  journalist used it to produce a piece of his own without checking the facts with the bank or independent analysts. That account may well turn out to be untrue. Still, given what we’ve seen in recent days, the unthinkable stupidity of the scenario seems entirely plausible and in character with wider economic and financial news of late.

Of course, the other main point in common between UK rioters and debt-punishing markets is how neither of those surging forces of destruction have been much impressed by warnings from political leaders that All This Must Stop Now. Despite stern promises of retribution and ruthless police and legal action against marauding thugs by British Prime Minister David Cameron, there’s as much evidence the slacking of nightly unrest in the UK is a result of that spontaneous action burning itself out as unexpectedly as it started as there is to suggest would-be rioters are now staying home in fear of getting caught. People bent on unspeakably irresponsible, anti-socially selfish acts aren’t usually dissuaded by political scolding.

Similarly, despite the semblance of calm that returned to markets Thursday, that, too, seems to owe little to the decision Wednesday by President Nicolas Sarkozy to suspend his summer vacation and convene an emergency cabinet meeting about the darkening financial situation. The result of that—an announcement that an announcement on serious French debt cutting action will be made Aug. 24—isn’t the kind of thing to halt panicked-powered markets in their tracks. Meanwhile, it’s only the most recent of half-hearted efforts by European leaders to calm—or cow—the bovine stampeding of markets that has brought the euro zone closer to collapse. And it doesn’t appear to have been much more behavior modifying than the even more dramatic stands that came before. Since composition of this post began, the small gains initially posted by European stock markets have largely reversed themselves as business has returned to its dismal usual .

New polls suggest markets aren’t the only observers who aren’t impressed by the determination European leaders have expressed in responding to the debt situation. A new survey of German politicians shows a majority of members of Chancellor Angela Merkel’s own party are unhappy about the measures she’s adopted with euro zone peers to combat the crisis. Maybe she should run for office in France instead. A new study there  finds 46% of French voters expressing confidence in Merkel to find a way to surmount the current crisis, versus 36% airing assurance in Sarkozy’s ability to do so.

For once, however, the politicians aren’t being viewed as the biggest heels out there by public opinion. The same French survey found just 17% of respondents saying they believe ratings agencies and banks will contribute to efforts to avert a new global financial and economic calamity. Only 6% of people predicted traders would play a similarly positive role. That’s 6%. Even if they’d  been included in the poll, could British rioters done much worse?