Could the Unthinkable Happen in Today's Markets?

What am I referring to when I say the Unthinkable? What I mean is a direct intervention into the stock market by the Federal Government. I am not talking about more bailouts of financial companies who overleveraged and forgot how to properly assess risk. I mean our government actually buying stocks to support the market.

Granted it would take a lot more pain and the market would have to shed a few thousand points more to get anyone even close to advocating this, but is it that much more of a philosophical leap to go from bailing out AIG, FNM and FRE and becoming the owner of those companies, to supporting the stock market?

Other governments do this routinely, and Russia Wednesday announced it was putting $44 billion USD into its market through three state owned banks.

How could this be accomplished in the U.S? By allowing the Social Security Trust Fund to invest a small percentage of its assets in the domestic stock markets. This might require a statutory change by Congress, but anything is possible in this environment.

I am not sure this would solve our current crisis since it is related more to credit than the stock market, but certainly the 25% fall in the market indexes are a contributing factor that impact confidence and wealth.

Now please don't jump all over me for writing this - I am not supporting the government doing this. I am just wondering out loud what the future might hold as Paulson and Company reach into its bag of tricks and finds that it is running out of magic.

Comments

[1234987:]

I commented on Monday's blog about the Social Security trust fund actually taking an ownership role in these cash strapped companies.

The Trust is solvent short term, long term tese investments WILL pay
off very well!!!!!

Thanks for the openmindedness, its precisely this type of thinking
that will get us out of this mess.

2008 Sep 18 12:49 PM

[F. J. Taylor:]

Thank you, no. In fact, not only no but HELL no! It is precisely this sort of plan and similar that I and others have vigorously opposed for years.

First, the government shouldn't be bailing out these institutions (with borrowed fiat money that will fall on the taxpayers for generations to repay, let me remind you), thus rewarding them for greed, short-sightedness, stupidity, and in some cases doubtless malfeasance.

Second, the SS fund SHOULD be in a locker-box for the future. If it were so, and remained so, they would have never had a potential short-fall issue. However, they have been raiding it for years for other pet pork projects, and that should be a criminal act.

Now you propose that the Feds use OUR SS funding to bail out said corporate greed-heads, suggesting that it will be repaid handsomely at some unspecified later date by the same stupid and clueless people who created this fiasco?

If you, I, or anyone else wishes to gamble their money on the Street (and gambling is what it is)
I want to do so with money I have at my discretion and command, and at my direction. I DEFINITELY don't want a combination of greedy fools and legislators (which are basically the same thing) tossing the dice for it.

Let me inform you that I have absolutely minus zero intention of letting our gormless legislators give Wall Street the Social Security money they have been salivating over for so long. In fact, I will be starting a campaign against just such a contingency right now.

Thanks for the idea.

2008 Sep 18 02:08 PM

[Sailorman:]

First the government needs to stop the gambling in the market by eliminating puts and calls so people have to start investing again! This market is an absolute shame that is being controlled by big money using not even real money but leverage to boot. That is what has to end!

2008 Sep 18 02:44 PM

[Steven Hansen:]

this discussion is academic. the funds have been commingled with all other usa money.

i agree it the social security money should have been locked down. the cat is already out of the bag and grown into a lion - it ain't going back into the bag.

2008 Sep 18 09:11 PM

[oldgoldbug:]

All those "wackos" who said gold would go to $5000 or $10000 or any other crazy number you care to quote were always dismissed out of hand. "Can't Happen". Well, I hope not but what is happening recently with all the government takeovers makes me think that precious metals will be the last bastion of freedom and independence from governmental control. The eventual value of the metals is almost irrelevant as we have no idea how much money must be printed for the government to make good on all its guarantees. The late and sorely missed Harry Browne, when talking about hyperinflation in Germany in the 20's pointed out that the government never missed a payment on its bonds; holders had to pick them up because the stamps were worth more than the payments. How are Paulson and Bernanke more qualified than the heads of these corporations to run them?? Let them fail, let Buffett and other cash rich conservative businessmen buy what they want and let the system take care of the rest. Otherwise the eventual failure will bring down the government and the system. I really hope I am very wrong.

2008 Sep 19 03:08 AM