The Bailout to be Named Later
Last night I watched President Obama hold one of the worst press conferences I can remember a president having. Long answers that were short on any substance and several clear contradictions. In one sentence he said "The days of spending more than we make, and living beyond our means are over". He then went on to detail how the US government is the sole entity that can solve the crisis because it will borrow more than it collects in taxes to live beyond its means. Classic. The President had no details on the rescue package, as he wanted to give Tim Geithner "his day in the Sun" to explain the plan. So I waited for today.
I am still waiting.
The big ball of nothing that was announced today was both a waste of time and a dangerous sign that the headliners in charge are still lost. I am not going to cover any of the plan's details that were announced, as those items as well as 80% of the plan are still in flux. Remember that we are told something has to be done ASAP or the world will collapse, but Giethner says the plan will not be put forward "until they get it right". How does he know when the plan is "right"?
I had warned my more liberal friends that when George Bush was gone, things were not really going to change. Without a convenient target to complain about, people might have to come to terms with the fact that George Bush by himself was not responsible for the economic mess. That blame falls squarely on the FED, the Treasury, the SEC, and the US Congress. All the same players are still there. Today's total bemusing display of incompetence means that the old fool Bush may be gone, but the supporting fools are still in charge.
The markets tanked, as should have been expected. Without a clear plan to give away all the money that the banks want, they all hit the "SELL" button. While a rough day, there was no real damage done. The market players were trying to scare the FED and Treasury into quicker action, and I think they will succeed. The "BUY" buttons will be firmly depressed going into weeks end. Silly hissy fit. Great chart from Jesse's Cafe Americain sums up my position on today's action:
Must See Video
More and more details are being uncovered concerning the big scare Hank Paulson gave Congress back in September. Remember the old "tanks in the streets" line? Well it seems things were even worse than we may have known. Any system built on confidence and pure belief is by definition built on nothing at all. Almost all modern banking systems thus fit the "built on nothing at all" description.
This Motley Fool blogger has a great take on the whole thing:
Now, we have another video (actually available since late January), and one which I encourage every Fool not only to watch but to circulate as they see fit, in which Congressman Paul E. Kanjorski of Pennsylvania reveals some shocking information regarding a bank run which occured right here and indeed brought this country and the entire world economy to within three hours of complete and systemic financial collapse. In this video, Congressman Kanjorski reveals (at about the 2:15 mark) that the move to raise the move to guarantee money market funds up to $250,000 was an emergency measure to stave off a massive run on the banks that removed $550 billion from the system in a matter of just a couple of hours. Treasury then injected $105 billion to no avail, and shut the system down to prevent a panic continuation of this electronic bank run. By "their" [read Treasury's] estimation, had they not shut it down and issued the guarantee, money market withdrawls would have reached $5.5 trillion by two 'o'clock that afternoon!! He then indicates Treasury's assessment that the run not only would have destroyed the U.S. economy immediately, but would have collapsed the world economy within 24 hours.
So there you have it, Fools. Britain we know came within 3 hours of utter collapse, and now we see that the U.S. came just as close a month prior! Indeed, the entire world economy came within a day of systemic failure. It makes you wonder... how many hours do we stand from such a scenario at the moment? Further, what warnings can officials from the new administration utilize to influence Congressional votes that could possibly trump those warnings of Paulson and Bernanke on that Thursday evening back in September? These are fascinating and perilous times, and I urge all Fools to keep watching intently. Our modern financial system is gravely ill, and may never recover... we have to be asking ourselves what comes in its place if only as an exercise of due diligence.
It is my firm belief that an event such as the two narrowly avoided in the Fall of 2008 not only WILL occur, but MUST occur. While the Treasury may have stopped a bank run, one must think that plenty of panicked money holders have since resumed their removal of funds but at a much slower pace as to stave off another shut down. I do wonder how the 5.5 Trillion estimate would end the financial world as we know it but 3 trillion dollars in various bailouts can only make things stronger? Anyone want to take that one? Kevin perhaps?
The money you make and have saved up only exists in a notional sense. The only thing backing it up is a collective agreement that it exists. You and I do not matter, but rest assured that the deep pockets will take their money out first, convert it to something with real value (like GOLD) and then exit the collective agreement. Anyone that sees this video must know this to be true.
Have a good night.