One Week Into The “Rescue”

Here we are, one week since the “Great BailOut of 2008”. It’s been one week since some members of Congress stood up and said they thought the items in the bill were a bad idea but they were voting for it anyway. It’s been one week since others told us this was the best thing to do for our country.

Leading up to the bailout we were reassured that it would:

a) restore confidence in the credit industry

b) stabilize the market

c) save us from even greater financial ruin

In the past week, there has been anything but confidence in the credit industry, the market is far from stabile, and retirement plans have lost trillions of dollars. Let’s review the market activity of the past week.

On Friday, after the House passed the bill and the President signed it into law, investors showed us their confidence in the plan and the dow dropped 777 points.

Things were “better” on Monday and the market only dropped 369 points. I knew things were getting bad when the television commentators were calling a drop like that a good thing.

Tuesday saw no light at the end of the tunnel, and we saw a loss of 508 points.

Using the strategy of most television financial experts, Wednesday was “much better” with a drop of only 190 points.

What happened to the bailout? The President told us on Monday that the “rescue plan” would take time. How much more can the market take?

Thursday’s drop was 679 points and we closed the week on Friday, bouncing back from a 700 point drop earlier in the day to close down 128 points.

The market has dropped 1,874 points this week alone, and 2,651 points since Congress and our President passed the $700 bailout or “rescue plan”, if you will.

When do we get rescued? Where’s the lifeboat? Do we need to send up a flare or something? How far does the ship have to sink before they spend some of that $700 billion on some buckets?

It’s clear now that the market was going to do this whether or not we passed that bill. Imagine that. The market was going to tank whether or not we agreed to an additional $700 billion tax burden and government intervention where it doesn’t belong.

Now, all we can do is sit back and ride out the turbulence in the market. The economy is weak, but I don’t think it’s as bad as all the nay sayers claim it is. The volatility in the market is being fueled by panic and once that panic dies down and the smoke clears, we’ll all move forward, like we always do. This is a financial crisis, not an economic crisis. But if we’re not careful it could become a severe economic crisis.

Steve Forbes, one of the smartest people I have never met, has an excellent article on the Forbes website titled, Fear Will Subside. While I disagree with him that the bailout was needed in the first place, I do agree with his points about the current market volatility. He also puts the cause of this whole mess in perspective.

This whole crisis was absolutely unnecessary. The list of villains is long and ugly. The housing bubble and the promiscuous issuance of exotic junk securities would never have reached the level they did had the Fed not been so recklessly loose in its monetary policy. Our central bank behaved like a bartender who continues to ply low- to no-cost booze to already inebriated customers. The White House and Treasury Department went along with the Fed’s weak-dollar policy, which wrought havoc on the world by creating a commodity bubble and a catastrophic loosening of lending standards and investing prudence.

In the Wall Street Journal, Paul Volcker, the former chairman of the Federal Reserve, said,

For months, the real economy, apart from housing, had not been much affected by the developing crisis. Now, a full-scale recession appears unavoidable. Important state and local governments face deficits they may be unable to finance. Recessionary forces are apparent in other important countries and exchange rates are unstable.

Paul Volcker is a smart man and he’s smart to point out that much hasn’t happened to affect the economy other than the downfall of the sub-prime mortgage industry. Businesses associated with the mortgage industry have suffered, but for the most part every other segment of the economy has been holding it’s own or doing just fine. Don’t get me wrong, my wife and I have seen this coming for a while and have been planning accordingly. I traveled to Las Vegas a year ago to “rescue” my mom who was losing her home. The signs of this crisis have been visible for quite a while. Paul Volcker also said,

The inevitable recession can be moderated. The groundwork can be laid for reconstructing the financial system and the regulatory and supervisory arrangements from the bottom up. The extraordinary interventions by the government (and taxpayer) should be ended as soon as reasonably feasible.

I agree with him 100% on that last sentence. The government intervention has to stop as soon as possible. In fact, I wish it had never happened. We know now that the market would have tanked regardless of the bailout, so it’s time to let the bad companies die and allow the good companies to rise from the ashes. The worst thing for our banking system is to have the government’s fingers in it helping to keep bad companies (which are already responsible for this mess) afloat.

There is no doubt that things are bad, and who knows when the market will begin to correct itself, but closing down the markets is definitely not a good idea either.

Italian Prime Minister Silvio Berlusconi said political leaders are discussing the idea of closing the world’s financial markets while they “rewrite the rules of international finance.”

I agree with Stephen Green. Telling people they won’t be able to access their money because the government is fixing things is a really bad idea. In a rare sign of lucidity the White House agreed, saying today that the United States has no intention of closing the financial markets.

Here we are, one week since we passed a law giving the Treasury Secretary unprecedented power over our nation’s financial industry, and he hasn’t done anything yet. There has been no additional regulation of the housing industry, no additional oversight, and most importantly not one penny of the $700 bailout package.

While we’re waiting for something to be done, why don’t we spend our time constructively and go after those who helped cause this problem in the first place? Instead of holding hearings with Lehman Brothers and AIG executives, why don’t we put people like Senator Christopher Dodd (D-CT) or Rep. Barney Frank (D-MA) in the hot seat and see what they have to say?

Ed Morrissey at Hot Air, says,

Dodd sold out the American taxpayer for a few thousand dollars and a boatload of campaign contributions, and then blocked the kind of reform that would have prevented this collapse. Dodd needs to start answering questions rather than serving as an Inquisitor to Wall Street execs, and he should be doing it from the status of an ex-Senator.

We can’t forget about the people responsible for running Fannie Mae and Freddie Mac either. Shouldn’t former CEOs of Fannie Mae, Franklin Raines and Jim Johnson sit in that chair for a while? Let’s not forget about Fannie Mae CFO, Tim Howard either.

Truth be told, there is plenty of blame to go around, but the one thing we need to remember is the term “never again”. Never again should we allow such rampant corruption in our financial markets. Never again should we allow such widespread abuse of the systems in place. Never again should we trust our elected leaders to “bail us out” of a situation they themselves helped create.

Never again.