Just Another $700,000,000,000 Day at the Office

The debate on Capitol (or should it be "Capital") Hill rages over whether to grant Treasury Secretary Henry Paulson a $700 billion check to ball out failing - or already failed - financial institutions.

On Tuesday, the Secretary and Fed head Ben Bernanke gave testimony and fielded questions from the Senate. Today, it was members of the House of Representatives who took turns poking and prodding the "Desperate Duo." The hue and cry for accountability, protection and limitations on executive pay could not have been louder.

On the last point, Paulson and Bernanke finally gave in, bowing to congress' demands that CEO and top executive pay be slashed for firms participating in the plan. Whatever they lawmakers come up with, it will likely be watered down, non-binding and easily skirted. With $700 billion floating around, who's going to miss a couple hundred million for Paulson's buddies here and there?

The debate also raged on message boards. A message I posted on one such board seemed to sum up the situation to the satisfaction of a number of participants. It follows, in part, below:

Fannie and Freddie, the guarantors of about 50% of all mortgage loans in the US have already been taken over by the govt. The "banks" who made the loans repackaged the mortgages and sold them to investors.

The stupidity of the top financial firms was in their greed, they kept a lot of these mortgage packages - officially off their books - but still there, and in some cases borrowed against those same, bad funds to leverage themselves even more, until it all began to unravel.

Instead of dispersing the risk, they kept much of the risk concentrated in their off-balance sheet transactions, a la Enron. There are numerous parties and counter parties, all leveraged out through derivatives which will cause unknown damage across the credit spectrum.

At this point in time, the $700 billion has little to do with mortgages, and much more to do with credit risk, leverage and derivative exposure by top financial firms. There's no regulation of this money and risk and it continues to flare up as companies are exposed. Some of it is criminal, some just bad judgment. These companies caused the problem by not diversifying risk like they were supposed to according to their models and were leveraged 35-1 in some cases. Now it is unwinding and the carnage could be great though there will be survivors.

It needs to be unwound without bailouts and tax money or else it will just continue and will result in a real catastrophe down the road. You can't just play games and never get caught. There are consequences and the bailout is designed to take the burden off the financial companies which will be harmed or are already insolvent.

That pretty much summarizes my position. Meanwhile, a number of developments overnight and during the day are worth noting.

The FBI has launched a preliminary fraud investigation into the workings of Fannie Mae, Freddie Mac, Lehman Bros., and AIG, along with 22 other firms. The agency seeks information and background leading up to the various bailouts - all manufactured with close care by Paulson and Bernanke, I should add - and whether fraudulent practices were used in the lead-up to the eventual massive bailout proposal now under debate.

Goldman Sachs (Paulson's former firm) and Morgan Stanley were granted quick approval to change their designation from investment banks to holding - or, commercial - banks, in addition, they are seeking exemptions to retain their commodities and other businesses that normally don't fall under the rules. The speed at which these approvals were granted was breathtaking. No accounting, no review, no peering into the firms' practices. I suppose that when you're sweeping billions under the rug, you take care to do so quickly.

Dow 10,825.17 -29.00; NASDAQ 2,155.68 +2.35; S&P 500 1,185.87 -2.35; NYSE Composite 7,768.82 -16.45

President Bush will address the nation at 9:00 ET tonight on the airwaves. Hurrah!

In light of the confluence of events, the markets took a breather, trading in a narrow range. That still didn't prevent declining issues to outpace advancers, 3938-2363, or for new lows to overwhelm new highs, 294-19. Yes, 19.

Commodities were mixed, with oil falling 88 cents, to $105.73, gold up $3.80 to $895.00 and silver up 27 cents to $13.44.

John McCain could simply not resist the opportunity to grandstand, calling for cancellation of Friday's scheduled debate between him and Barack Obama, ostensibly to return to Washington to help get the legislation passed. He must be really worried about debating head-to-head with Obama.

What's sure to follow are calls that the Democrats are dragging their feet on this legislation. The administration surely wants to get its mitts on that bundle of cash and, as usual, they will hold a gun to the head of Democrats and the American public to get it.

What a day!

Volume was extremely light.

NYSE Volume 1,081,259,000
NASDAQ Volume 1,815,884,000

The Self-Fulfilling Financial Meltdown Prophecy

The Gospel according to Bernanke and Paulson:

Heed ye these dire warnings. Iffeth thou do not giveth the sum of seven hundred billion US drachmas to your brethren in the financial services industries, whatfor good are ye, oh, congress!

For iffeth thou shall fail to giveth away the money of the taxpayers to the richest men in the world, a terrible plague shall befall both of your houses: those of the House and yeah, that of the Senate as well.

No companies shall be spared the wrath of the vicious economic maelstrom which will surely come iffeth thou do not giveth over the money before the Sabbath, or Friday, or whenever you decide to go into recess, whichsoever of these comes first.

Heed ye these words well and giveth without oversight or conditions and without restraint on the prophets Bernanke and Paulson, for they shall lead us into the desert, and out, and probably back in and out and eventually down a black hole of debt.

These are the words of a pair of Wall Street snake oil salesmen.

That the financial crisis occurs on the week before quadruple-witching (last week) and in the heat of a taut presidential and congressional election is just a little too coincidental in its timing, isn't it?

Am I the only one who smells something fishy here, especially noting that every day the congress delays passage of the "emergency" bailout plan for failed Wall Street banks, stocks slide further still?

Monday was full of drama, and Tuesday was a nice sequel, with the markets tacking on further losses as Bernanke and Paulson testified before congress on the urgent need for $700 billion dollars.

Really! They want it before the week is over, and without deliberation and without the usual markup process and without oversight provisions, and $150 billion - as proposed by Senator Schumer - is not enough, and no cuts to executive pay for companies who participate in the largest single fraud ever perpetrated on the American taxpayer. Right away! The credit markets are frozen, don't you know?

Well, the ordinary American just isn't really buying it. Life keeps going on as normal in most parts of the country. People have ready cash or credit and sure, there's some suffering, but that's always been there. And those foreclosed homes, well, sell them at a discount. Hey, the people who bought them lost. The banks who lent the money, based on bogus appraisals and worthless credit checks, or no credit checks, can stand to lose a few billion.

Besides, weren't these loans all packaged up and re-sold to unwitting investors? Why do the banks and financial institutions have these toxic tranches of mortgage debt on their books. Are they just that stupid? And if they are, they deserve to go down the memory hole. No bailout. Not now, not ever, not on my - and your - dime. No siree!

Wall Street, meanwhile, played the part of the wounded puppy again on Tuesday while lawmakers on both sides of the aisle cast doubt on the program and some Republicans, notably Senators Shelby - who wants alternatives - and Bunning, have expressed outright opposition to the plan. Democratic Senator Christopher Dodd said the plan was "not acceptable."

So, get ready for the greedy self-dealers on Wall Street to send the markets into another dizzying decline. The word is out there. Either give us what we want, or we'll break the system.

Many would love to see them try to tank their own companies because for every unscrupulous, corrupt banker or financier, there's another lurking behind every trade and what once was yours becomes mine, and at a much lower price, thank you very much.

As if the stock market wasn't shaky enough on its own. It doesn't need any extra "help" finding a bottom.

Dow 10,854.17 -161.52; NASDAQ 2,153.34 -25.64; S&P 500 1,188.22 -18.87; NYSE Composite 7,785.27 -133.34

Our market guides were right on target again. Declines led advancers, 4419-1951. New lows surged again past new highs, 286-35.

Oil dipped $2.76, to $106.61 on the November contract. Gold was clipped $17.80, ending at $891.20. Silver also fell 28 cents, to $13.17. Commodities behaved normally.

If the market doesn't crash by Friday, it will serve as testament to the recklessness and deceit of both Bernanke and Paulson and their unashamed pleas to help the feckless bankers, "right now." They should both be locked up and the keys tossed away.

My advice to congress - despite them never listening to me ever before - is to do nothing, adjourn and recess on Friday and don't come back until after the election. Sure, the stock market may be down some by then, but I'll bet the US and global financial systems will still be functioning.

Volume was moderate, not like there was a crisis or panic. It's bad, but not that bad.

NYSE Volume 1,152,885,000
NASDAQ Volume 1,999,011,000

Market Chaos: Theater of the Absurd

If you thought last week's market action was wild, hold on. The second act: this week, figures to create such a climate of fear and derision the likes of which most traders and common people have never seen.

Remember 9/11.

That bears repeating: Remember 9/11, when the Twin Towers were felled, supposedly by fires caused by airplanes smashing into them 90 stories above ground. It was fiction then and it is fiction now.

And, you'll recall that the first thing the Bush administration did was to enact the Patriot Act, stripping out habeas corpus and other rights from the constitution and rushed through Congress without deliberation or debate.

The current "crisis" is nothing more than the handiwork of the same criminals. Henry Paulson, Treasury Secretary and former CEO of Goldman Sachs (more on those louts later in this article), put forward a piece of legislation to the congress calling for an "emergency" bailout of Wall Street companies and financiers to the tune of $700 billion - more or less - or else risk the "collapse of the US economy."

The language in Mr. Paulson's proposed legislation included this nugget: "Decisions by the Secretary [of the Treasury] pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency."

Of course it would. The administration is attempting to nationalize all the wealth in America. They've already glommed up most of the mortgage debt through the bailouts of Fannie Mae and Freddie Mac. They now own 80% of AIG, which was the nation's largest insurance firm. They are disguising a complete takeover of America's wealth by scaring everybody into believing that there is no alternative.

They are so utterly corrupt, deceitful, dishonest and ruthless that every American should be scared, not of financial ruin, but of tyranny and a de facto coup d' etat by the same group of "leaders" who marched us into Iraq on threats of "imminent danger", "weapons of mass destruction" and "the smoking gun is a mushroom cloud" rhetoric.

How absurd is it? Take a look at these closing numbers:

Dow 11,015.69 -372.75 (-3.27%); NASDAQ 2,178.98 -94.92 (-4.17%); S&P 500 1,207.09 -47.99 (-3.82%); NYSE Composite 7,918.67 -268.46 (3.28%)

And that's with short-selling of nearly 800 "select" companies being sheltered by the SEC's no-shorting rules which went into effect last week and will expire - however conveniently - on September 29, after congress has acceded to the demands of the Treasury Secretary and has gone into recess, of course.

The proposed Wall Street bailout has raised the ire of a slew of activist groups and the call is unified: No deal without accountability, enforcement and financial penalties to corporate executives. Better yet, some groups are calling for the best outcome of all: that congress take their scheduled recess beginning this Friday, and stay in recess until after the elections on November 4 without passing any legislation including this rushed, ill-intentioned (and probably unnecessary) bailout proposal.

The level of absurdity reached new levels on Monday as Goldman Sachs and Morgan Stanley - the two remaining investment banks out of five - asked to change their designation from investment bank to commercial bank. If approved, the crooks who robbed corporations of shareholder value for years can now take money directly from consumers as well.

Henry Blodgett makes the case in "Wall St. R.I.P."

More hilarity came from Yahoo's Tech Ticker with columnist
Aaron Task asking if last week was the market bottom.

Judging by the comments and today's results, Mr. Task ought to begin polishing up his resume right quick. His credibility as an economic correspondent is nil.

Market breadth was prominently bearish with decliners trouncing advancers, 5032-1365, or by a 4-1 margin. New lows retook their position above new highs, 182-60. Volume was extremely light due to the lack of short-selling and covering on many issues, general investor disgust and the declines of today represent a beginning of the final unwinding of this overly-leveraged market. Many small investors are clearly on the sidelines, and certainly, fund managers are shedding even more dead weight from their portfolios in light of the extreme market conditions, to say nothing of the impending end of the third quarter.

Commodities boomed once again, with crude oil for November delivery settling up $6.62, to $109.37. After spiking up $25, a clear threat from the PPT and those calling the shots of what's to come if congress doesn't grant Paulson and Treasury wide-ranging, sweeping powers to take over the wealth of the nation, the October contract closed at $120.92, up $16.37, the largest one-day gain ever for the slimy commodity. Gold was up $44.30, to $902.00. Silver, the day's best performer, was up nearly 8%, gaining 97 cents, to $13.45 per ounce.

NYSE Volume 1,269,865,000
NASDAQ Volume 1,914,590,000

Chicken Little and Henny Penny Save Wall Street

Fear.

It's what drove the Dow down 950 points over two days this week. Oddly enough, fear also was the motivating factor behind Wall Street's dramatic two-day turnaround in which the Dow gained back nearly 800 points.

On Monday and Wednesday, the fear was that major investment banks were about to cause a global financial meltdown. On Thursday and Friday, the days the market rebounded, that same fear fueled a rally as government agents intervened with various devices designed to cool traders down, eliminate short selling and wipe clean the balance sheets of some of the most over-leveraged companies in America.

Was the fear of global financial calamity real? Maybe, though it was probably not as bad as many thought or as those government interlopers made it appear.

Rushing around Washington, jawboning members of congress, Fed chairman Ben Bernanke and Treasury Secretary Henry Paulson put on their best impressions of Chicken Little and Henny Penny, declaring to all who would listen, the sky is falling, the sky is falling!

Well, as we all know from the fable, the sky isn't really falling and sly Foxy Loxy eats most (or all, depending on the version you wish to read) of Chicken Little's friends.

So, the moral is the same on Wall Street as it is in stories we softly tell four-year-olds: Have courage, or don't believe everything you hear. This little nugget of wisdom should not be lost on investors, all of whom are in their adult years, though many act like four-year-old children.

If anyone was eaten, it was the American taxpayer, if the Paulson plan is actually adopted by congress. If it turns out that the pending disaster was more fiction than fact and congress either acts slowly or not at all, then we have all had our lunch eaten by the government and its various agents of deceit.

It's also worth noting that today was a quadruple witching day, on which contracts for stock index futures, stock index options, stock options and single stock futures (SSF) all expire. Huge sums of money changed hands this week.

For now, the Foxy Loxies have the upper hand and are laughing, but another adage also applies, he who laughs last, laughs best. And that last laugh, my dear friends and readers, comes November 4, election day. Who will be laughing then?

It should also not be forgotten that we are still in the throes of a vicious bear market. This week saw no bottom being put in place. It's far too early in the cycle for that. Also, true bottoms are never overcome by such massive volume as was evident on Thursday and Friday. There is still a long way down before recovery begins. The wild activity of this week should be seen only in the overall context of disaster averted... for now.

Dow 11,388.44 +368.75; NASDAQ 2,273.90 +74.80; S&P 500 1,255.07 +48.56; NYSE Composite 8,186.47 +411.31

The mammoth moves over the past two days did move some key metrics. On Friday, advancing issues outpaced losers, 5345-1131, nearly 5-1. For the first time in a very long while, new highs exceeded new lows, 442-280. It will be interesting and useful to see just how long those numbers remain shifted toward stocks making new highs.

Oil finished up $6.67, at $104.55, but the metals were battered, as one would expect. Gold fell $32.30, to $864.70. Silver lost 23 cents, fending the day at $12.48. The general understanding is that commodities should continue to unwind, along with stocks. The deflationary spiral has begun, and the government can only intervene just so much, for just so long. Sooner or later, the real market dynamics return.

This week was fun and proof once again that the party never stops on Wall Street.

Volume was very high, but again, there was an abundance of self-dealing.

NYSE Volume 2,954,863,000
NASDAQ Volume 3,965,442,000

Say Good Bye to Free Market Economics

Government Taking Extreme Measures to Rescue Corporate America

Unbelievable.

The measures being undertaken by various branches of the government, including the congress, the SEC and Treasury in concert with the Federal Reserve are the most extraordinary that I have ever seen.

The US Treasury is opening a function that will guarantee money market funds. Treasury also recently announced plans to sell bonds to fund the Federal Reserve. The Fed and Treasury are planning, with congress, to create an entity for the liquidation of bad debt. The SEC has banned short selling on 799 financial stocks.

Adding to the steps already taken - bailouts of Bear Stearns and AIG, the takeover of Fannie Mae and Freddie Mac - the federal government is engaging in nothing short of naked fascism, the combination of government and corporations.

Being sold as various attempts to "unfreeze the liquidity crisis" the government is doing more to boost the fortunes of the same people and companies which precipitated the whole mess. They are making them whole. Banks, funds and other financial institutions are being made whole by allowing them to whisk away all of their underfunded obligations from the balance sheets.

Eventual cost to the taxpayer for the entirety of these measures will run into the trillions of dollars. If the figure reaches $2 trillion (and that's probably conservative) that would result in a debt of roughly $6,500 for every man, woman and child in America.

Guess what? With 6,500 free dollars I could pay off almost all of my debt. So could most other Americans. My sister and her family would get $32.500. They could buy a few more rental units. Certainly, every other individual and family would benefit from such a generous show of largess. But, that's not going to happen. No, the money is going to the banks.

If the government wants economic prosperity, it would probably be better the forget the greedy, cruel, uncaring, lascivious banks and financiers and give the money directly to the citizenry. The banks will be saved, with the American people getting nothing but the bill.

It's absurd. The federal government is completely off the rails and out of control. Largely, it is the fault of the American public, who were warned at least 40 years ago about apathy toward government. Eventually, however, responsibility must fall on the sitting and previously-elected officials who allowed this pitiful economic condition to occur and who are now employing desperate - and ultimately damaging - methods to "fix" the problems.

The entirety collapse of the financial underpinnings, the bailouts and special entities created to restore confidence in the markets are not the making of the president, the Fed, the Treasury, the SEC, the congress, the Wall Street bankers or unscrupulous lenders. It is all of them, working in concert, to undermine the capitalist system and democratic institutions.

The government is already nearly $10 trillion in debt. Another couple-three trillion isn't going to affect anyone, except for the value of the US dollar, which will plummet in value even more than it has over the last 8 years.

On the surface, everything in most places in America will feel and look the same as always, except in one place: the future. Once more, America's leaders have chosen to mortgage our future to save the banks and other poorly-run and grossly-negligent financial institutions from even an ounce of pain, spending money we don't have that creates a debt to be bourn by today's youth and the yet unborn.

America is rapidly morphing into a complete warfare/welfare state. The current rescue operations are only the more bold and significant devices to further that particular political and financial structure.

The US stock markets, which are due to open within minutes, should end the day with record gains. The govenment has cancelled most, if not all, bad corporate debts. Horray!

Say good-bye to free market economics.