Monday, November 17, 2008

A Fictional Scenario of the Future: The Final Bailout

by Martin D. Weiss, Ph.D. 11-17-08

We have come to a major crossroads in the history of our nation, a time when you must understand all the relevant events in far greater depth, and see the likely future with far greater clarity.

Indeed, I feel this need is so critical and urgent, I am providing you this morning with the most elaborate gala issue in the history of Money and Markets.


Volcker: Absolutely. Let’s bring this back to the present by asking this question: Is this the direction you want to take the country? If anyone in this room is willing to take that risk, say so now or forever hold your peace.

Because that’s the fork in the road we are now approaching — the end of the fast lane we’ve been on. I’m referring to the fast lane of open-ended government bailouts. The fast lane of “consistent messaging” to cover up the true cause — and the true consequences — of these bailouts.

Mr. Secretary, never forget: Millions of investors, mostly overseas, have put their faith in U.S. government securities. They’ve loaned you their money because they trusted you, the U.S. Treasury Department. If you continue to pour their money into these bailouts, what do you think their reaction will be?

What makes you believe that they’ll respond any differently than they did in 1980, when they disappeared from the U.S. government security market or, worse, dumped their bonds in fear? What makes you believe you can stop the cancer of mistrust from spreading to 1500 Pennsylvania Avenue — to the U.S. Treasury Department itself? Full Story.

EDITORIAL: When billions become trillions

Monday, November 17, 2008
The Federal Reserve, the Treasury Department and the Democratic Party seem to be in a race to see who can flaunt more money at more suppliants in quicker time with less thought.

When the Federal Reserve and the Treasury Department decided to put $30 billion into Bear Stearns in March, Fed Chairman Ben Bernanke and Treasury Secretary Henry Paulson said they were "pleased" with their efforts to "promote liquid, well-functioning financial markets." There were no warnings from the two financial chiefs that more trouble was ahead.

In July, Congress started asking questions about Fannie Mae and Freddie Mac. Mr. Paulson said: "Their regulator has made clear that they are adequately capitalized," even as a former Federal Reserve president warned they were already insolvent. A month later, Mr. Paulson admitted $200 billion (and maybe more) would be needed to bail out the two mortgage giants. From there the landslide began. There was $700 billion to buy toxic mortgages and other assets from banks. Another $25 billion in loans went to the American automotive industry. Taxpayers were paid $168 billion in stimulus checks in February. All told, the federal government has shelled out $1.148 trillion on top of a $454 billion-closing-budget deficit.

The handwriting was on the wall at the start of the year. While first-quarter receipts for fiscal 2008 reached a record-high $606 billion, outlays for that quarter were also a record, at $712 billion. As the situation worsened, Mr. Paulson said nothing and did nothing. Full Story.

No comments: