More of a Witch Hunt Than a Solution

 

The free market is dead. Our government has adopted a new policy: change the rules in the middle of the game and nationalize troubled companies, assuming all the risk on behalf of the US tax payer. Apparently it is now in our best interest to own a bunch of failing companies. And how do they propose to save these failing institutions? They're going to inject them with cash, improve their liquidity. Sounds good, but where are they going to get the cash? Oh, no problem, they'll simply print it. But won't that increase our national debt, increase our taxes, and create more inflation? Of course it will, but we'll all feel better in the short run, and in the long run we'll forget all about how we got in this mess in the first place, because we'll be conditioned to accept things the way they are.

Gee, that sounds like a sound plan. Stop the bleeding, reverse the spiral down. Make everyone complacent, and distribute the cost over many years. What do you think the chances are that the government will be able to pull it off? I think somewhere between zero and slim. And that's the problem, nobody knows if it will work. But it's better than the alternative, right?

So I heard two different components to the plan. The first is instituting the Resolution Thrift Corporation [RTC], and the other is to ban short selling. One proposal I heard was to ban shorting just financials, another called for banning all shorts. That's crazy talk! So if I'm to believe our government, it was the short sellers that caused all the problems. Is it not true that if short sellers take prices too low buyers will clean their clocks? It's what makes the markets so vibrant, the natural oscillating action. So I don't get it. Sounds more like a witch hunt than looking for a solution. And what of market makers? How are they going to operate under the new rules? If everyone is now mandated to be a buyer, how do we hedge without shorts?

The kicker here is that the total solution is going to take a literal act of congress. That means debate and political squabbling. I mean what incentive do the democrats have to see a solution emerge under the current administration - how will that help their candidate? Perhaps that's a bit cynical, but I believe a valid question.

The markets today simply reacted in a knee jerk way. They heard the government had a solution, and that sounded better than the apparent alternative. So they rallied. The fact is that we're still under water with recent declines, and once investors digest the totality of what is in store, there's going to be more questions than answers. And we'll be right back where we started. Uncertainty, the death knell of the markets.

Disclosure: none

 

Comments

[wpdragon]

Make no doubt about it, what they have done to kill America's cherished tradition of free and open markets they fully intend to do to the Constitution, and the book burning attempts by Palin are a clear example of what we cam expect from this terrifying group of criminals.

We're on the brink of a police state.

[ResourceWise]

The US is facing a financial emergency - a raging wildfire that is out of control - due to decades of living beyond means. Short sellers seem to be adding to the problem so a temporary ban is not such a bad idea. Extreme circumstances require extreme solutions.

[wpdragon]

ResourceWise the legal short sellers who perform a vital role in maintaining free and open markets didn't create the subprime catastrophe, they only brought it to the attention of the world.

The people who were destroying the financial markets were the hedge fund naked shorts, spawned by IB's and MCB's and ignored intentionally for a decade by Cox and Pitt before him, and only pulled in when it looked like the republicans would lose the election in November (which is why they have been so DESPERATE to keep the Dow above 11,000 for the past 6 months... that is their line in the sand where they know popular support will start to erode).
Your phrase "Extreme circumstances require extreme solutions" terrifies me, for not only is it a moral copout, but it proffers the image of a totalitarian approach to governing the markets, it takes no leap of logic whatsoever to see that the people of this country would be next.

There are some things a nation living under a constitution such as ours can not compromise on, and this is one of them.

[mediapro]

This piece is nothing more than another wringing of the hands about the plight of the poor capitalists and the need for government to just get out of the way.

Actually there is another alternative.

AIG has already experienced the appropriate medicine. Strike a deal with every one of these pigs along the lines of Paulson (doing a remarkable version of Franklin Roosevelt). (e.g. You want money. We got money. Now let's see what you're really worth and how important it is for you to stay afloat.) The U.S. Treasury made $15 Billion today on the AIG deal, and at a 10% interest rate on the borrowed capital will continue to make money off these Hank Greenburg-inspired scum. After all, the insurance products side of the business, you know the one that they were so good at before the repeal of Glass-Steagall, is doing just fine thank you.

Let's finally face it and celebrate the fact that the U.S. Government has always been in the business of business and finally take ownership to that fact. If we truly believe in the ability of business to make a buck, let them make that buck and shovel back our share of the profits when they fail to understand that they aren't the most brilliant lights in the sky flying home to Uncle Sam when their greed exceeds their intelligence.

Perhaps, this dose of medicine will finally convince the pigs that they should be a little more cautious and with a little less hubris.