The always entertaining Ben Stein has an interesting theory in the NYT about the current market uproar. Under the heading of what he calls "trader realism," Stein believes that Wall Street's downward move has less to do with fudamentals like unemployment rates and bank writedowns and more to do with traders figuring that now is a good time to sell short (that is, betting that stocks will keep going down).

They have seized upon a fairly bad situation: a stunning number of defaults and foreclosures in the subprime arena, although just a small part of the total financial picture of the United States. They have then tried — with the collaboration of their advance guards in the press — to make it seem like a total catastrophe so they could make money on their short sales. They sense an opportunity to trick other traders and poor retail slobs like you and me, and they generate data and rumor to support their positions, and to make money. More than that, they trade to support the way they want the market to go. If they are huge traders like some of the major hedge funds, they can sell massively and move the market downward, then suck in other traders who go short, and create a vacuum of fear that sucks down whatever they are selling.

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So when you see the market gyrating wildly downward and hear some pundit saying it’s because of this or that data or this paradigm or that ratio, remember trader realism. The traders move the market any way they want, any way they think they can make money, and then they whisper a reason to journalists later in the day. Then the journalists print it or say it on television, and the amateurs believe it. And the traders snicker.

As has become routine, Stein will probably get reamed again by the Wall Street bloggers, who of course know everything. Clearly, his theory is overly simplistic - fundamentals always have and always will play into investment decisions - though with any luck more folks will start noticing the disconnect between a weak-but-not-disastrous economy and the bearish strategies being played out on the trading floor. By the way, if you're looking for overreaction, check out the latest edition of KCRW's "Left, Right & Center" when Robert Scheer essentially argues that the U.S. government - in particular Bill Clinton - conspired to give the banks and investment houses the power to rip off everybody else - and that the economy, based on what's been happening on Wall Street, is basically on death's door. Oy gevalt. At least Matt Miller, another host on the show, has the good sense to bring Scheer down to earth. But when economies start to deteriorate, the know-it-alls tend to come out of the woodwork.