Now that the bailout didn’t change anything- Plan B anyone?

Without systemic change, nothing changed. The bailout was passed, and even despite protecting the wooden arrow manufacturing industry in the US, we’re still up the proverbial creek. The markets are unstable, irrational and the wild swings are more than markets can handle. The Wall Street Casino may as well have gone bust. It’s time to step in and stop the carnage as described by the NYT today:

The selling on Wall Street began at the opening bell on Monday and only intensified as the day went on. Shares moved sharply lower as the banking crisis tightened its grip on the global economy.

The Dow Jones industrial average fell below 10,000 for the first time since 2004 after losing more than 500 points in the first hour. The index has lost more than 1,100 points — or about 10 percent — in slightly more than a week.

Shortly after noon, the Dow was down 524 points or 5 percent….

The sharp slides came despite more reassurances from President Bush and a morning announcement from the Federal Reserve that it would significantly expand the amount of money it made available to major banks. The Fed will now lend up to $900 billion in credit, an enormous sum that officials hope will reassure banks that the government will provide them with adequate capital.

The moves were aimed at resolving a problem at the center of the current credit crisis: the reluctance of banks to lend. The healthy functioning of the world’s economy is dependent on the easy flow of short-term loans among banks, businesses and consumers, a stream that has been cut off as banks become more fearful of giving out cash.

President Bush made an unscheduled stop on Monday morning to speak about the crisis with owners of small businesses in San Antonio. Visiting for a half-hour with consumers and business people at Olmos Pharmacy, an old-fashioned soda shop and lunch counter, the president said, “It’s going to take a while to restore confidence in the financial system.”

“We don’t want to rush into this situation and have the program not be effective,” Mr. Bush said, calling the package “a big step” toward righting the economy.

Stocks Fall Sharply on Credit Concerns – NYTimes.com.

Immediate moves that would stabilize the market:

  • Freeze all stock transactions unless stock has been held for at least a year.
  • Demand banks offer reductions in consumer credit card interest rate in exchange for any additional access to money at the Fed window. Consumers can choose the lower interest rate if they agree to a progressively lower credit limit and accelerated principle repayment schedules.
  • Provide a new pool of mortgage funds through a government sponsored plan that allows consumers in adjustable rate mortgages to convert to fixed rate with a low transfer fee.

The goal is to take the volatility out of markets and to free up consumers to stimulate the economy without having to do direct rebates like the last “Stimulus package” that only provided a temporary relief (that was only $150 Billion).

There is also the question of the Wachovia deal. The idea that Citigroup has a shot at buying at $1 a share while Wells Fargo is offering $7 is twisted beyond Karl Marx’s wildest dreams. If we don’t show that shareholders must come first- they will abandon the market en mass, as they seem to be doing today.

Faith in the markets can only be restored when the markets are capable of acting like rational operations. The Wall Street Casino has now been exposed as a fraud, built like a Hollywood stage prop- it’s time to tear it down and build a real financial system again with real foundations rooted in business performance.

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14 Responses

  1. Drexel Dave October 6, 2008 / 2:43 pm
    Unfortunately, the ponzi economy operators are going to kick and scream into the abyss before anything like that is going to happen. They will bring us all down with them.

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  2. Gene October 6, 2008 / 3:00 pm
    since you gave it a whole day i will be willing to not bitch about barry obama for a week after he is elected. If he does not change shit in his first week he is full of shit like the rest of them. One week, and one week only. that is seven times your patience. JB

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  3. J.R. Locke October 6, 2008 / 4:07 pm
    I don’t see how this bailout changed anything. That wasn’t the goal or the purpose, hence the reason we HAD to get it done now. The sole goal was to enable credit markets to continue loaning money. So why are we even pretending like this fundamentally changed anything?

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  4. Jane October 6, 2008 / 4:24 pm
    I’m not surprised; it seems that the beast will continue to be fed until people can overcome their fears.

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  5. Gene October 6, 2008 / 4:35 pm
    it may not change a thing – but we need more than a day to figure it out, but the genius David has exposed himself as impatient and irrational. He thinks he pays too much for gas, send him to Europe.

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  6. Drexel Dave October 6, 2008 / 10:17 pm
    There is a solution for high gas prices. It is called a Schwinn.

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  7. Jane October 7, 2008 / 9:47 am
    You don’t have to go all the way to Europe, just cross the boarder into Canada.

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  8. pizzabill October 7, 2008 / 5:53 pm
    What gives?

    I did a sit-up (one) yesterday, and today I’m not in great shape?

    This exercise stuff is a myth, and I don’t need statistics to prove it.

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  9. David Esrati October 7, 2008 / 5:57 pm

    If the bailout bill was supposed to instill confidence in the US financial market as it was pushed- it seems that it hasn’t had the desired effect. No one said it would fix things overnight, but, it should have brought the bulls back to the street.
    None of that happened- because, there was no systemic change.

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  10. Zak October 9, 2008 / 1:13 am
    Perhaps I wasn’t paying enough attention, but was the bailout bill actually supposed to directly do something?

    I thought the bill merely gave the Treasury Secretary the authority to spend an additional $700 billion of the peoples’ money. Meaning that, in reality, no actual bailouts have happened yet, and so naturally there’d be no benefit seen in the market.

    Of course, I can see where investing a solitary individual with vast amounts of power, subject to very little oversight and no real checks-and-balances, might make democracy-lovers lose confidence in the system…

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  11. J.R. Locke October 9, 2008 / 2:52 am
    But the cry from President Bush, Half the Rubs, 3/5ths the Dems and all the media outlets was that the “rescue/bailout bill” was needed with urgency to provide exactly what David said “confidence” in the markets to restore lending. That should have an instant impact.

    This free market economy doesn’t work on supply/demand as much as it works on psychology….or so the grown ups say.

    So is McCain going to buy up foreclosed mortgages and sell the homes back at a fairer price if he is elected? Sounds like a big government program don’t it?

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  12. David Esrati October 9, 2008 / 9:21 am

    Isn’t a “confidence” game a swindle?
    McCain’s plan to buy homes and resell at lower prices seems stupid- especially, when the damage has been done by dumping so many homes on the market that people can’t get loans to buy are what’s causing part of the decrease in value.
    Again- give people the ability to afford their current loans- through lower credit card rates, force adjustable rate mortgages down- and maybe, even look at forcing fixed term mortgage rates down without a refinance process, while cutting salaries and bonuses to bankers and brokers would be a start.
    By cutting the easy income from credit cards, maybe banks would be forced to do loans to make more money?

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  13. Gene October 9, 2008 / 11:43 am
    so bail out those who can not/will not pay. sounds good to me, let me skip a few payments to catch up to all of the dead beats.

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