September 18th, 2008

Holy Cow! Feds pulling out all stops

Posted in Money, These United States by ed

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1.  Late Thursday evening we have reports:

-– from the Wall St Journal no less, that the SEC may follow the Brit lead and temporarily ban short selling! !?!?!?!?!?

–- and, indeed, that Treasury, the Fed and Congressional leaders have agreed to a solution for getting the illiquid s-f bonds off the books of the institutions and expect to have something by Monday.

From Marketwatch.com:

WASHINGTON (MarketWatch) — Top U.S. financial officials emerged from a briefing with congressional leaders Thursday night with an agreement to work quickly toward a broad-ranging fix for the crisis roiling U.S. and world financial markets.

Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke briefed House and Senate leaders to hash out a solution to the massive downturn in global markets and the failure of several financial firms.

Treasury spokeswoman Brookly McLaughlin said in a prepared statement that Paulson, Bernanke and congressional leaders  “began a discussion … on a comprehensive approach to address the illiquid assets on bank balance sheets that are … the underlying source of the current stresses in our financial institutions and financial markets.”

END QUOTE

I don’t expect Price Controls, of course. But a massive RTC type solution should address the problem — albeit by transferring the liabilities to a gov’tal entity, rather than (under price controls) merely ignoring them.

That is: Price controls would say, Okay, Citibank, you keep those $50 billion in illiquid mortgage bonds on your books, and you can mark them at (say) 70 cents on the dollar until they mature, and collect whatever interest they throw off and principal they throw back, and probably do okay, probably get your 70 cents worth. That’s it. And if you want to sell them to somebody, you sell them at 70 cents. That’s it.

And the same treatment thru out the universe regulated by the US gov’t. Level playing field. No transfer of the risk to a gov’t entity. Simply the bold declaration that the market for these bonds is broken and can’t be fixed.  Okay, everybody! — Out of the pool!

The dropped-jaw howling of the (mostly) Age-of-Reagan jocks who inhabit the investment world is music to my ears.  No short selling!?!?!

230807_main.jpg   They can’t fucking believe it.

(Nor, for that matter, can I, quite.  Perhaps the Journal got the story wrong.)

My god, what is going to happen tomorrow morning?  The Dow up 500 at the open?  What then?

It’s quite true that if the ban on shorting is general, the markets won’t do much.  Pro traders will be largely unemployed, twiddling fingers.  But I guess that’s the idea, for a while.  Something like a Bank Holiday (lovely phrase).

2.   But leaving all that aside.  Bush-Cheney have set the world on fire, in so many ways, and, however fairly, the world is holding them accountable for this mess.

When the American poltical system failed in 2004 to depose Bush-Cheney, the civilized world was left with little choice.

Something big is indeed ending.

Perhaps it’s the American hegemony that followed the world wars, or, merely, the Neoliberalism of the 80s, with its Free Market hogwash dusted off from the closet as the owner-operators of the US realized globalization was the ticket and (thus) the American working class was no longer necessary …

The parallels to 1932 …  All the more remarkable.

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  1. ed says:

    From the NY TImes:

    Abroad, Bailout Is Seen as a Free Market Detour

    By NELSON D. SCHWARTZ
    September 17, 2008

    PARIS — Is the United States no longer the global beacon of unfettered, free-market capitalism?

    In extending a last-minute $85 billion lifeline to American International Group, the troubled insurer, Washington has not only turned away from decades of rhetoric about the virtues of the free market and the dangers of government intervention, but it has also probably undercut future American efforts to promote such policies abroad.

    “I fear the government has passed the point of no return,” said Ron Chernow, a leading American financial historian.

    “We have the irony of a free-market administration doing things that the most liberal Democratic administration would never have been doing in its wildest dreams.”

    September 18th, 2008 at 9:56 pm

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