Yesterday, the market decided that perhaps Congress was going to pass the $700 billion Theft From American Taxpayer Act and hyperinflate the money supply (or, in the alternative, simply plunge us into an abyss of debt from which we would never escape as a nation), and as a consequence oil and gold were bid hard, while the dollar went in the toilet and so did the Dow.
After all, its somewhat difficult to make money as a corporation when either inflation is running in the double digits (see the 1970s and early 80s) or worse, you're clawing at the edge of the cliff as you sink into the maw of the debt-destruction monster.
Here's a short video on yesterday's market action
This morning, the markets are thinking that perhaps the bailout will not pass, and both oil and gold are down.... along with the market being (relatively) stable.
Former Fed President Mishkin keeps talking about "we must get this done." Really Mr. Mishkin? Where the hell were you during the last 10 years when this mess was occurring? Where was Ben Bernanke? Alan Greenspan? Henry Paulson? (Oh wait - Paulson was busy creating the mess and making himself $500 million in stock and options at Goldman Sachs!) How convenient of Mr. Mishkin to avoid the hard questions about failed oversight and willful blindness!
There is also apparently a proposal circulating among some banker-types to ladle up accounting games in the middle of this rescue, which may be why Henry Paulson doesn't want any oversight (or even visibility into what he's doing.)
This little piece of nonsense would basically book the loss to the banks as an asset and then amortize it over time, while allowing the appearance that a "distressed" price was being paid by Treasury (!) Huh? How's that possible?
Its tricky: the government would "buy" the asset with a contingent liability associated - that is, they guarantee a minimum price plus an upside "kicker"; this allows the bank to not recognize the loss immediately and effectively play games with the accounting rules. The essence of this - it makes people think they're doing a "mark to market" when they're really not, yet the sales is in fact final.
Nobody in their right mind and in a free market would do something like this, as it leaves a big ticking nuclear device on the balance sheet of the acquirer - but in this case, that "someone" is you, the taxpayer. Since Paulson is gone in four months, he does not care if he sticks $700 billion worth of crap (or more) onto the taxpayer balance sheet in a format that leaves a bomb sitting there for his successor that cannot be unwound!
If that successor tries to undo this unholy piece of crap he will detonate the entire banking system, which of course we can't let happen, and thus there won't be any way to unwind it. Further, it won't be able to be challenged in court as the blatant fraud that it is (see "Section 8" of the proposed bailout bill in the previous ticker) as Comrade Paulson has conveniently demanded a "get out of jail free" card in his proposal.
This is why these sorts of things, undertaken in secret and under the claim of "immediate need" must never be allowed to pass Congress.
Further, are you prepared for a more than $1 trillion budget deficit next year on the back of a record for this fiscal year (over $500 billion)? Are you willing to tolerate that, plus incredible increases in taxes - in the coming years? Hope so.
Oh, how much of an increase in taxes? To put this in perspective, in order to balance out the new deficit spending individual income tax rates would have to DOUBLE.
That's right - to bail out the fat cats on Wall Street your taxes will almost certainly double within a year or two.
Are you still gonna let 'em pass this bill? Remember, Henry Paulson got $500 million personally out of this and Goldman Sachs paid out close to $50 billion in bonuses over the last two years alone.
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