The morning after the night before

And, after thinking it all through, you may still want another drink.

After the worst weekly loss in its 112-year history, the stock market went up Monday. In fact, it went up a "nearly inconceivable" 936 points, by far its biggest-ever one day surge. And it wasn't just the Dow Jones industrial average, either: The Standard & Poor's 500 index and the Nasdaq composite index both rose over 11%.

Other markets also showed big gains: Germany's was up more than 9%; the figure was up nearly 8% in France. Japan's index rose 13%, and the Hong Kong and Australian markets had gains as well.

What drove this burst of confidence, this drive to recover and surge forward and upward?

Well, first of all, there may not have been as much confidence as some are suggesting:

About 2,900 stocks advanced on the New York Stock Exchange, while about 250 declined. But the trading volume of 1.22 billion shares was lighter than it had been last week, suggesting there was less conviction in the buying than during last week's selling.

Second,

[t]he market is likely to have back-and-forth trading in the coming days and weeks - and may well see a pullback when trading resumes Tuesday - as investors work through their concerns about the banking sector, the stagnant credit markets and the overall economy.

So no one was prepared to say things on the markets have hit bottom and in fact

Libor rates, a measurement of banks' willingness to lend to each other, eased a bit but remained at extremely high levels.

In other words, the credit crunch is by no means over and everyone, including investors and the banks, remains edgy.

But ultimately,

[t]he market did appear to take heart when the Bush administration said it is moving quickly to implement its $700 billion rescue program, including consulting with law firms about the mechanics of buying ownership shares in a broad number of banks....

What's more,

Wall Street was cheered by word from the Bank of England that it would use up to $63 billion to help the three largest British banks strengthen their balance sheets.

The Bank of England, the European Central Bank and the Swiss National Bank also jointly announced plans to work together to provide as much short-term funding as necessary to help revive lending.

After a series of weekend meetings in Washington of heads of the Group of Seven nations, the gains in global markets signaled that investors found comfort from the actions and pledges coming from government officials.

That is, the markets rose on the news that governments - which means the general public, i.e., taxpayers - would actively intervene in the market. That governments would do exactly what the acolytes of acquisition, the fiery mavens of the free market, the gurus of growth, used to insist must never, ever, be done. The markets rose on the tacit admission by banks, by investment houses, by the warlocks and wizards whose arcane financial instruments were supposed to have created wealth out of nothing, by governments including the Shrub gang, rose on the tacit admission that, as I said yesterday, the free market is a failure.

Which means that at least to some, the Washington Post said on Friday,

[t]he worst financial crisis since the Great Depression is claiming another casualty: American-style capitalism. ...

The government's about-face goes beyond the banking industry. It is reasserting itself in the lives of citizens in ways that were unthinkable in the era of market-knows-best thinking. With the recent takeovers of major lenders Fannie Mae and Freddie Mac and the bailout of AIG, the U.S. government is now effectively responsible for providing home mortgages and life insurance to tens of millions of Americans. Many economists are asking whether it remains a free market if the government is so deeply enmeshed in the financial system.

Whether or not it's "enmeshed" in the system is up for debate, since the government doesn't seem to be doing anything with its takeovers except finding ways to push money into those institutions (including upping the ceiling on AIG's credit line from $85 billion to $122.8 billion). Still,

[g]iven that the United States has held itself up as a global economic model, the change could shift the balance of how governments around the globe conduct free enterprise. ...

"People around the world once admired us for our economy, and we told them if you wanted to be like us, here's what you have to do - hand over power to the market," said Joseph Stiglitz, the Nobel Prize-winning economist at Columbia University. "The point now is that no one has respect for that kind of model anymore given this crisis. And of course it raises questions about our credibility. Everyone feels they are suffering now because of us."

The wisdom of crowds?

The important thing to realize here, however, is that this is, again, a tacit admission of the failure of the market and the absolute necessity of public oversight, control, and yes ownership. I can guarantee you none of the folks involved, in or out of government, will say that out loud, even though that is what they are admitting by their actions and reactions. Because what they want, what they want more than anything at this moment, is to be rescued from their own greed and stupidity by feeding from the public trough while being free to at the first opportunity return to their "market is god" diatribes and PR campaigns, to their "whatever will line our pockets in the short term" philosophy, only to return to the public teat when things again go sour. As they will.

Public - again, that is taxpayer - investment without public oversight is simply taxing the poor to support the rich. And, at the end of the day, that is what we are doing.

Footnote: Yes, this is how they think:

[S]tock prices that were decimated by frenetic selling are now looking attractive.

Jim King, chief investment officer at National Penn Investors Trust Co., said the fear that took hold of the markets last week was overwrought and could signal that a bottom is near. When selling turns so frenetic that it hits a broad swath of stocks indiscriminately, as it did last week, many market watchers say a market low is at hand. That creates opportunity, King noted.

"We have exceptional companies at fire sale prices," he said.

The market collapses! World-wide credit crunch! People concerned about losing their jobs, their homes! What good news for investors!