It can't get worse ... Right?

http://mobile.nytimes.com/article?a=161717&f=19

This is an interesting piece on the growing divorce between the security and stock markets and the economy more broadly.

Basically what seems to be happening is that Wall Street can no longer shape reality. In the past few decades when things got down the investors would flood the market with money looking to get ahead of the curve and the resulting cash influx and exuberance would bump the economy onto an upswing. However this time the old method doesn't seem to work, with the result being starts and fits that always get dragged back down by the fact that people are out of work, losing their homes, and getting smacked by inflation and high energy prices.

What is causing this? One thought is that capital only matters insofar as it can be utilized in a productive way. Have a hard time seeing what good junk bonds and flipping mortgages to more effective debt collectors does for the broad economy.

Another may be that our old baseline, which matters since we are focused on relativistic measures, is off. With the recent cut in the capital gains tax there should be a gradual shift in money to Wall St as people realign their assets. This growth in demand for capital goods should drive up the price if the fundamentals remain static. How big is this? I am not an economist but I think someone should know.