Comment Rescue — Why It’s Not Over, Part I
One of my favorite commenters, Not Brian, writes cogently and points the way to something other than print Treasuries thinking in this thread. I’m reposting the full text here because you should read the whole thing:
The market is a short term (down to the second when open) barometer of the price one party will pay for another for a share of a company.
Today’s fast fall in stock prices may be largely due to the reaction to the bailout failure, but if it was not this drop today, it would be other days. Even if the bailout succeeds, it helps banks and will increase short term liquidity. That does not solve the problem.
We have had earnings driven by people becoming heavily indebted. All this excess cash was dumped into the economy. Unless you believe that once the credit markets get settled out that banks will take the same risks, and that houses will increase in value and we will get back to the some liquidity as today then you have to realize there will be less money out there to spend in the economy. Than results in lower earnings.
The market had been priced like the boom was going to go on forever. It needs to come down. Paying banks for having been irresponsible will not help. Bailing out derivatives that will have NO VALUE in a severe recession is not an answer.
Economic cleansing is the only way for it to work.
I could see an an argument for putting the $700Bln into infrastructure (stimulate employment and invest in the future) or for some form of assistance to homeowners designed to help them improve their equity position in their home, but a blank check to the banks is insane. It is a giveaway. It is a crime.
I work for a big FI, it would likely benefit me directly for this to go through. It should not.
People who believe that the stock market will be harmed by this are crazy, it is the tail wagging the dog. People are getting out of stocks because they (and their risk) are not worth what they are priced at, not because the bailout failed. The DJIA is down from 14K… did it lose the first 25% over a year because of anticipation of the bailout not passing? No, because it is over valued. The market needs to settle out, it does not need to be supported.
There is no doubt that something serious is going on here. There is also no doubt that no one has spent any real time really talking about the contours of this problem or what alternate solutions might be or what the real pain might look like. Just because Paulson — many months too late, mind you — decided that he simply could not nationalize everything and needed broad power, authority and money to make it all better doesn’t mean that you always have to conduct the conversation on Paulson’s terms.
Tags: Bush's Fubar Economy
Aw! Thanks Cassandra!
Thanks to Joanne and he ‘ECONOMIC CLEANSING NOW!!!!’ which got me thinking about it.
Ironically, cassandra, when you say There is also no doubt that no one has spent any real time really talking about the contours of this problem or what alternate solutions might be or what the real pain might look like.
I think that’s what nearly 125 leading economists around the country (including several Nobel laureates) were saying when they signed a petition to Congress NOT to do this bail-out without due consideration and investigation
http://faculty.chicagogsb.edu/john.cochrane/research/Papers/mortgage_protest.htm
Glad to see you on board NB w/ my “harsh”, but sterile “non-handling” of this economic mess. When the government begins to add grand scale situational integers to the problem solving, all you do is change the algorhrytm (sp) , and redirect the problem….and again, being charged as we go! Enough is enough.
Steve, I should have said that there is no doubt anyone in Congress or the Administration has spent much time thinking about alternates. I’ve been reading about alternates all over the web for days now and there are lots of interesting and cheaper alternatives that I will be posting about in the next day.
Yes Steve, but to watch the evening news you would think the Bush bailout bill and a couple modifications are the whole of the options available. It was kind of like the war – all of the coverage had an underlying assumption that it was a necessary action without a lot of exploration into the fact that it really has no sound rationale…
You would hope that there would be some discussion outside of what the pols and lobbyists want us to do…
That’s why I am still stunned that there were no hearings — they just let Paulson set the terms of the debate and off they go. Even if they just accepted that the world was coming to an end, no one asked the huge number of really smart people outside of government who might be able to illuminate another path.
All the more reason I think it is a money grab by both parties… a $700Bln one time windfall makes the bankruptcy bill seem trivial by comparison…
NB/cass
Complete agreement: and here’s another thought:
Throw 700 billion [more like a trillion] out there, and ask yourself, while we are rescuing the economy, who’s going to make a profit on all this government largess [read: my tax money]?
Steve – I think we can pretty much guarantee it won’t be the taxpayers raking in profits.
It can be structured so the taxpayer will reap the profits.
We’ll see….doubt it though. The gop will want a reward for their benefactors.
Von – I think you mean the Democrat’s, folks like Dodd and Barney Frank…..
Please! Bicker over party all you guys want, this is about cash… they are all corrupt…