The Contrarian's View s published 11 times per year on a mostly-irregular schedule, and the views expressed are those of the author and editor, Nick Chase. Because nobody can predict the future, results of past suggestions or recommendations are no guarantee of future results. My own material in this publication may be freely quoted provided proper attribution is given to its source; quotes from other people are subject to fair-use copyright restrictions. Subscription rate: Free on the Internet. Using your favorite Web-browsing program, open URL http://onashi.org. Former paid subscribers to the printed version are now receiving LIFETIME subscriptions, and subscriptions to the printed version are no longer being accepted. Unsolicited material sent to us by UPS or by courier other than the postal service is refused and returned to sender! ISSN 1536-4429 Phone: (508) 757-2881
As September wore on, it became obvious that the risk of an approaching systemic collapse was rapidly increasing, and that a rally just wasn't in the cards. As I write this in early October, we can clearly see that the systemic collapse has arrived. The interbank and commercial lending markets are frozen; Congress has passed an incredibly stupid "bailout" bill which subverts the liquidation of bad debts at market value and decreases transparency; and the hedge funds and derivatives markets are deleveraging with a vengeance.
We have reached the point of no return. No governmental action is going to reverse the trend of accelerating asset deflation in the near future. It's now only a question of whether the actions of those in power are going to be detrimental enough to drive us into a colossal Greater Depression, or whether we'll be lucky enough to escape with just a severe, but somewhat typical post-WWII recession.
One of the aspects of the current turmoil has been the absolutely abysmal reporting by the media, even the financial press. In particular, the coverage of the so called "bailout" bill seemed to universally assume that if it were passed, it would work and the crisis would subside. Nobody in the media seemed to question whether the bill would, in fact, accomplish its claimed purpose. When it was voted and signed I looked at it and said, No way. It does more damage than good, and it's too little, too late, anyway. The collateralized debt swap derivatives market is about to fall apart, and that will crush anybody's willingness to lend.
The bright spot? The public was overwhelmingly opposed to this bailout. Common sense still prevails on Main Street, and people knew this would be throwing good money (their money!) after bad. But the Congresscritters got snookered by their leaders and by the bureaucrats. Makes you wonder who they really work for. Not us, I guess. Fire the lot of them at the next election (except Ron Paul).
With the ongoing whirlwind of institutional collapses and the alphabet-soup of newly-created government facilities trying to arrest the onrushing crisis, it's easy to lose sight of what's really going on. What you are witnessing is an old-fashioned money panic, of the kind that would periodically grip the U.S. in the 19th and early 20th centuries.... except this time, the panic has trapped all of the world's developed nations. This is because the shadow banking system (investment banks, consumer finance and mortgage companies), which through the magic of derivatives could effectively create its own money supply (that is, credit), took on too much leverage and is now going belly-up in the bust. The crisis then spread into the traditional banking system, the large players of which had also done the same stupid things in off-balance-sheet entities.
But traditional banks have government backing, so the Feds (and in other countries, their central banks and monetary officials) get to pick and choose which banks will live and which will die.... based on how systemically interwoven they are into the financial structure.... at your expense, of course. Part of the collapse of the current system is a consolidation of shadow banks into the banking system, or a conversion of them into banks, along with an enormous power grab by government to expand its authority over the banking system, in effect nationalizing most areas of lending. (If it worked for the Soviets, it should work really well for us, right?)
I have long maintained that fiat monetary systems are inherently evil, because instead of using a medium of exchange and reliable store of value on which commerce can be safely based, they rely on a centrally-controlled diktat to maintain stability; and, ultimately, humans are too weak-willed to manage the system for the long term and this results in a crisis of confidence such as we're now undergoing. However, fiat monetary regimes can look successful for a very long time, and it isn't until they finally collapse that their evil nature becomes readily apparent. Their evil nature can be detected while they're in force if you look carefully..... the system favors debtors over savers, and large institutions (and especially banks) over individuals. It is natural for a government-authorized central bank, by force of law, to take actions which favor its clients.... the banks and the banking system.... at the expense of the rest of society. Taken to its logical conclusion, eventually the banks will own everything, and you will own nothing. Born into debt, you will die in debt. Even if you don't personally assume that debt, it has been done on your behalf by others in society.
That is, until the system blows up, as it's now doing. The Austrian economist Ludwig von Mises wrote, "What is needed for a sound expansion of production is additional capital goods, not money or fiduciary media. The credit boom is built on the sands of banknotes and deposits. It must collapse."
As the frigid fog of financial fascism descends upon us, you are watching history be made.
With all that's transpired in the past few weeks there
are a lot of quotes. So I've devoted the rest of this
issue to them; the traditional format will return in the
next issue (or maybe the one after it, depending on
what happens during the next month or two).
May 31, 2006 - "The risk I worry about the least right now is a dramatic drop in the dollar. And I don't believe there is a general housing bubble. There might be anomalies in certain regions but I don't see a real estate bubble across the U.S."
September 16, 2006 - "U.S. economic growth is settling into ranges more in line with our long-term potential. The residential housing market is cooling from record unsustainable growth rates, but growth in the U.S. economy is being supported by other components. Higher wages, strong company profits and business spending will offset a weaker housing market."
December 11, 2006 - "We have had a correction in the housing industry and we are in the process of transitioning to a more sustainable growth rate."
"We do not want Americans to become over extended and see their dream end in foreclosure."
March 13, 2007 - [The fallout in subprime mortgages is] going to be painful to some lenders, but it is largely contained."
April 20, 2007 - "All the signs I look at" show the housing market is at or near the bottom. The U.S. economy is very healthy and "robust."
June 20, 2007 - "We have had a major housing correction in this country. I do believe we are at or near the bottom. It doesn't pose a risk to the economy overall."
"I tried to make clear we will be dealing with the subprime issue for some time and that there will be losses along the way. It is a natural outgrowth of what we've seen in the housing market and certain lending practices. As mortgages continue to reset, this will take time to work its way through the system. But I continue to believe that this risk is largely contained. It doesn't pose a significant risk to the economy overall."
July 26, 2007 - "I don't think [the subprime meltdown] poses any threat to the overall economy."
August 1, 2007 [...worries over problems in the subprime mortgage market spilling over into other sectors.] - "The market has focused on this. There's a wake-up call, and there's an adjustment to this repricing of risk, but I see the underlying economy as being very healthy."
"As an economic matter, this is largely contained because we have a healthy and diverse economy."
September 9, 2007 - "I never thought of myself as a cheerleader. I believe our economy is healthy."
October 30, 2007 - "I believe there is enough strength in our economy that we will continue to grow through this though housing is the weakest part of the economy."
November 23, 2007 - "I think we're working our way through this. But I also recognize that it's going to take longer for these markets to operate the way they should be, and until they are, there's a certain amount of fragility in the system."
December 17, 2007 - "I don't think what we need is a big government bailout right now. I think what we need is to help the markets work the way they're intended to work and avoid those foreclosures that are preventable."
January 8, 2008 - "...let me be clear: There is no single or simple solution that will undo the excesses of the last few years."
March 4, 2008 - "Most of the proposal [bailouts] I've seen would do more harm than good. Investors, lenders or speculators should be accountable for the risks they took. Let me be clear: I oppose any bailout. I believe our efforts are best focused on helping homeowners who want to stay in their homes."
March 16, 2008 - "I've got great confidence in our financial market, our financial institutions. Our markets are resilient. They're flexible. Our institutions, our banks and investment banks, are strong."
May 16, 2008 - "We are still working through housing and capital markets issues, and expect to be doing so for some time. We also expect to see a faster pace of economic growth before the end of the year."
"We are seeing signs of progress as capital and credit markets stabilize. The markets are considerably calmer now than they were in March."
"Some bumps in the road" are likely, especially in
the housing sector, but we are closer to the end of the
market turmoil than the beginning."
At first, I thought we could deal with the problem one issue at a time. The house of cards was much bigger and started to stretch beyond Wall Street. When one card started to go, we worried about the whole deck going down.... Confidence is the only thing holding up this giant house of cards. - George W. Bush [Nick's comment: A ray of clarity from our president..... describing our financial system as a "giant house of cards".]
The Fed has informed Bank of America to be ready for a one-week universal shutdown of the banking system, including access to checking accounts, savings accounts and credit cards. This is why you need $5,000 in small bills in your safe at home and small denomination gold and silver coins. - Bob Chapman [Nick's note: I have seen this rumor/thirdhand info several in several places on the Internet, but naturally cannot find anything resembling official confirmation or proof. But I do find it believable.]
The interbank market has collapsed. We're now seeing a domino effect as the credit multiplier goes into reverse and forces banks to cut back lending to clients.... The ECB is no longer able to inject liquidity because the money is just coming back to them again. This is extremely serious. If monetary policy is no longer working, there is a risk that the whole system will blow up in days. - Hans Redeker [currency chief, BNP Paribas]
I've been speculating all week that the pressure being used on the Congress to pass the Paulson Plan is the threat of Fed illiquidity. As of two weeks ago, the Fed had lent out more than $600 billion of its $800 billion balance sheet Treasuries against crap MBS collateral. The Paulson Plan would have allowed the banks to unwind the repos, putting the Treasuries back in the Fed, get cash for the crap MBS, and get more Treasuries from the issues financing the $700+ billion funding of the Plan. As a bonus, the Paulson mark-to-maturity price becomes the implicit Level 3 price for capitalisation of all the firms and banks in the system, giving them some breathing room to stay in business. Everyone wins except the poor American taxpayer. The Fed is very close to being illiquid. That is the fear factor we are seeing at work, and the reason no one will discuss why the bailout is needed - only emphasise the urgency. - "London Banker" (Internet blog post)
I said a long time ago that my fear was we'd end up in a Japan-like situation - facing a long, drawn out period of economic weakness. I got some pushback there. People argued that we were different ... that America dealt with its economic problems quickly ... that we wouldn't just prop up so-called "zombie" companies for quarters or years on end, and instead let them fail. That, in turn, would let the stronger companies survive and thrive. But look at what has happened in the past year and ask yourself: "Is that really true anymore?" I think a case can be made that we're sacrificing the long-term principles (free markets, unfettered capitalism) that make America great just to avoid short-term pain. I also think you can make an argument that all these moves by the Fed, the Treasury, and Congress could be prolonging the crisis, rather than solving it. - Mike Larson
My forecast: Just to keep Fannie and Freddie solvent will take so much capital, there will be no funds available to pursue the primary mission of this bailout - to pump money into the mortgage market and save it from collapse. That mission will ultimately end in failure. - Martin Weiss
The Treasury plan is a disgrace: a bailout of reckless bankers, lenders and investors that provides little direct debt relief to borrowers and financially stressed households and that will come at a very high cost to the US taxpayer. And the plan does nothing to resolve the severe stress in money markets and interbank markets that are now close to a systemic meltdown. - Nouriel Roubini
We do not need and cannot afford a financial mad rush to judgment. The odds of failure on the Paulson plan are 100%. The Paulson plan will not create any jobs or help homeowners pay their bills. Instead it diverts $700 billion of taxpayer funds to failed banks that took excessive risks. The sheer size of the bailout will cause interest rates to rise, further adding to taxpayer woes. - Mike Shedlock
I suspect that part of what we're seeing in the freezing up of lending markets is strategic behavior on the part of big financial players who stand to benefit from the bailout. - David K. Levine [economist, Washington University]
I don't mean this to be rude -- and I certainly don't mean this to be partisan -- but isn't it obvious that most of the people we've elected to the House and Senate haven't got the technical knowledge and the intellectual firepower to guide our country safely through the turbulent skies? And isn't it obvious that most of these preening buffoons spend nearly all their time lining their own pockets, showboating, raising money for their re-elections or running for higher offices -- in short, concentrating their energies and attention on everything except doing the jobs for which we've elected them? Of course there are exceptions in both political parties. Every so often, you're watching some television news talk show and suddenly there's a member of Congress on camera you've never heard of before who actually knows what he or she is talking about. But the blond news anchorette with teeth like Chiclets keeps interrupting -- and by the time your spouse comes running into the room to see what you're shouting about the interview is over even before you've gotten the House or Senate member's name. And chances are you'll never see this splendid lawmaker on television again. There just aren't enough of these talented and dedicated lawmakers in Congress to get the job done. We've let this go on for too long, and now we're in a real jam: Our economy is teetering on the edge of a cliff, we're in the midst of a war -- and we're relying on the people who got us into these unimaginable disasters to get us out of them. Fat chance. - Herbert E. Meyer
I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs. - Thomas Jefferson
As I watched the testimony on Tuesday I kept having this one thought coming up in my head: "These folks are acting as though someone is holding us hostage - almost there's got to be a $700-billion ransom note paid off right now or something very very bad is about to happen that no one is talking about." I think it was the part where the Treasury Secretary was insistent on the amount ($700bn) but couldn't seem to produce a justification for it. I've been a 'numbers guy' in the corporate world in strategic planning and marketing. I can tell you from experience that boards of directors and senior managements in any successful American company would fire a marketing director on the spot if he came in and insisted "I need x dollars for a marketing campaign - and I will be making up the details as I go along - but you gotta trust me, this is gonna work." Get me HR on the line, please... The firing would come so fast as to make your head spin, especially if the marketing director was dodging very simple and straight-forward questions.... What would happen in a very well-run corporate boardroom pitch? Paulson would have walked in with a projector and put up a PowerPoint with some spreadsheets, and he would have made an air-tight case on how the estimate of $700 billion was arrived at. There would have been a list of key players, some probabilities, and a process map. Instead, what the Senate ended up hearing was a cocktail napkin plan interlaced with many repetitions of "Trust me on this..." Yet wasn't Paulson one of the key insiders until 2006 in building up the game? - George Ure
No one can doubt any longer that the United States is run totally for the benefit of the banks. - James Turk
The international bailouts of the banking class are a hint of what is coming soon - a new monetary system, an end to national sovereignty, the rule of law replaced by the rule of men and the will of the people simply a matter of manipulation. The world is rapidly descending into fascism. - Joseph Farah
The piper must be paid. The question is whether to do it now - and let the chips fall where they may, or, to kick the can down the road and pay the piper later. The answer, of course, is to kick the can into the next generation, with another leap toward socialism. The bailout plan - whatever the particulars - is nothing short of a government takeover of the financial industry. The next president will have to sort it out and build the road toward future recovery or final disaster. - Henry Lamb
As regular folks around the country watch Washington power brokers ram through the financial industry bailout plan, what I think most find deeply troubling is to see so clearly how insecure our property is. It's almost incomprehensible that, in the course of a few days, politicians can slap together a package in which they will take almost a trillion dollars of our money to buy the trash securities being held by various financial institutions. And that this is legal. It is certainly not an indicator of a good state of health of economic freedom when private property can be expropriated this easily. - Star Parker
World confidence in the financial markets has been badly shaken. There have been bank runs in Russia, U.K., U.S., and now Hong Kong (although Hong Kong is not really too much involved in mortgage backed securities and the heavy leverage insanity like in Europe and on Wall Street). Europe, Japan and the Anglo-Saxon world are in deep trouble and we should admit it to ourselves and take immediate action. Rumor has it that when the Titanic first hit the iceberg, some passengers engaged in a snowball fight on the deck...clearly missing the message. Today is not so dissimilar. Many authorities, particularly politicians, seem to be blind to the simple reality. The reality is that the financial system is in grave danger. Instead of trying to cover up the problems and allowing their banking institutions to lie about their big problems, the authorities of every major country must act to recapitalize the banks of the world in order to keep the world economic system running. Federal Reserve Chairman Ben Bernanke, whether you like him or not, is one of the world's experts on the Great Depression of the 1930s, and he understands the problem all too well. He called Treasury Secretary Paulson (who was afraid that a bailout plan would not be easy to get by Congress) and said we have to do it now before it is too late. Chairman Bernanke is correct. - Jim Sinclair
The Securities and Exchange Commission has a list, and it's checking it twice. It's a compendium of nearly 1,000 companies the so-called watchdog has now pronounced off-limits to short-selling.... In the end, SEC Chairman Chris Cox and friends will discover that this will turn out to be an epic example of the law of unintended consequences. They've probably just succeeded in blowing up a tremendous number of quantitative-oriented money managers and hedge funds. In essence, this targets anyone who runs a long-short fund or arbitrage fund of any kind, and anyone who manages any sort of stock basket. To distill those gory details down to their essence, what the SEC has done is guarantee that less liquidity will be available for markets. I suppose that if this doesn't work, the next step will be to just outlaw selling altogether. After all, that does seem to be the government's response to prices it doesn't like. - Bill Fleckenstein
The financial "alchemists" have finally blown up their lab. The game is over. During the credit bubble of the last quarter century, the US could create seemingly unlimited safe and liquid financial claims to trade for imported goods. In the future, nervous foreigners will increasingly want tangible goods, not just depreciating paper created at will. Unfortunately this means a lower standard of living for Americans as we adjust to a real world economy and wave farewell to the phony credit-bubble economy. - Tony Allison
The bill for the Paulson bailout plan could come to $1 trillion. At least, that's the estimate of Ken Rogoff, a Harvard economist. Let's see, that's about $12,000 for every family in the country. Yet, who complains? Where are the riots? Who's got a spare $12,000 to send to the feds so they can pass it along to Wall Street? It doesn't seem to matter to anyone - people figure it's all "funny money" anyway. And they worry that if it's not forthcoming, well - maybe the bureaucrats will do such a good job of managing this program that it will make a profit. Which gives us an idea: why not take TARP - as the program is called - public? Give public officials an opportunity to make some money for a change - let them put their own money into the rescue plan, along with the taxpayers' money. Let's see what the prospectus will say: 'Firm will buy up Wall Street's mistakes at above-market prices; later, when all this blows over, these 'assets' will be sold back to Wall Street.' Let's see how much of his own money Hank Paulson would bet on this business model! - Bill Bonner
The next administration's fiscal options are vanishing before our eyes. Somebody should tell the candidates and the country. - Clive Crook
The credit party is over. It's time to clean up the mess, get sober and get back to work. The Bush administration and the two candidates to date have offered nothing substantial to grow the economy - to get over that hangover. Their answers are more spending and more weapons. This is sort of like an alcoholic trying to cure a hangover with a Bloody Mary. It's time to cut them off. - Ellen Ratner
The central banks can lend money to banks, even taking bad assets as collateral, but it does not force lenders to lend to one another. They all know that, the truth be told, no one is admitting the extent of the bad paper they hold. So, they won't lend in interbank lending markets, and Libor rates skyrocket. That effectively negates interest rate cuts by the central banks. In effect, that means that banks/any borrowers cannot roll over short term financing, and that means that the commercial paper markets (short term business credit) does not roll forward, and that means that companies can't make payrolls, buy inventory, or do whatever. Since everyone from central banks, to businesses, to even people (ARMs) are borrowing short term money, and have to roll forward each term/month; the entire world credit market is being forced to deleverage since banks are refusing to roll forward new short term credit. This specific problem of not being able to roll forward short term credit is a system wide problem. The math of this is simply called debt deflation. And when it results in actual defaults, banks fail, people and businesses go insolvent, economic activity stops cold incrementally. And that is what is happening. The next phase for the remaining months of 08 will be the hundreds of thousands of layoff notices each month. It's called a deflationary spiral. - Christopher Laird
Inevitably, it appears Congress will call their constituents' bluff and the bailout will pass, because that is the habit Wall Street and Washington have fallen into. People are right to be concerned about our financial future. I've been talking for 30 some years about reasons we need to be concerned and change our ways. We find ourselves now in a position of no good options, and no silver bullets. But the worst thing we can do is to compound our problems by intensifying the mistakes of the past. We do have tough economic times ahead, no doubt, no matter what we do, even if we do nothing. The question, is will we have the courage to take our medicine now and get it over with, or will we prolong the misery for many years to come? I'm less and less optimistic about the answer to that question. - Ron Paul
Given today's [September 29] events in Washington and on Wall Street, the winner of the presidential election will probably ask for a re-count! - Ed Bonawitz
In my view, this crisis is, at present, most likely in the second or third inning and no further than that. Maybe only the second inning. Is this the beginning of a Great Depression? In my view, the answer is quite possibly, yes. The economic contraction now underway represents a global collapse on a scale only seen in the 1930s. For most, the economic landscape a year from now will bear few similarities to the carefree days we now enjoy. This is a matter of economics and to a very large degree, an extended collapse has already been baked into the cake via the years of gross excess that embodied the recent historic boom. The present monetary system could now be in the process of dying, and its death process could be long and drawn out, eventually yielding to an entirely new monetary regime. The mechanism by which this could unfold is very likely to be inflationary, notwithstanding the feelings by many that at the moment, profound deflationary impulses are at work. - Frank Barbera
Power and greed are the only visible juice driving the decision-makers in Washington today. Acting in the long-range US national interest seems to have gotten lost in the scramble.... It is what happens when elected governments abandon their public trust or responsibility to a cabal of private financial interests. It will be interesting to see if anyone in Washington realizes that lesson. Whatever next comes out of Washington, however, one thing is clear.... This is the end of the world as we knew it. The American financial Superpower is gone. The only important question will be what and how will the alternative be. - F. William Engdahl
....a better analogy is that the government is taking diseased livers out of its alcoholic buddies and shoving them into the public's guts and vice versa. The low-ball estimate for this latest scheme? Another trillion. By such machinations, politicians are converting bales of privately issued bad credit into what the government calls money. As we know, values do not come from nothing. So where does the value handed over to all these broke creditors come from? It comes from taxpayers' future assessments and savers' bank accounts. When the government monetizes debt, it reduces the value of all other dollars. American savers, through a developing contraction in the credit supply, were all set up to recoup some of the devastating losses in their purchasing power, but the government stepped in and stopped it by turning bad IOUs into cash and government debt. Effectively, by force of edict, it has placed windfall profits in private hands and dumped accumulated losses onto the public. - Bob Prechter
It is being reported today that many hedge funds that had been clients and used the facilities of Lehman are in trouble and may close down. The translation of that is that when bankruptcy of one side of an OTC derivative fails then Notional Value becomes Total Value, a fact no one seems to have focused on when the Fed walked away from Lehman. Walking away from Lehman was in order to send a message. The message appears to have been "Holy S**t!" - Jim Sinclair
An entire generation of American policy-makers - Clinton, Bush, Rubin, Greenspan, and the Congressional leadership of both parties - has come perilously close to ruining a great nation. The creation of the credit bubble was one of the most disgraceful episodes of economic government in western history. Nothing can justify it. There is no parallel to the Spain of Phillip II, who ruined his empire to pursue the religious cause of Counter-Reformation, or to the bankruptcy of the British Empire combating fascism. It occurred because America abandoned all restraint and gave license to consumer hedonism. - Ambrose Evans-Prichard
Instead of rounding up the escaped felons from their Wall Street dens and re-imposing law and order, Paulson and Federal Reserve Chairman Ben Bernanke have been running to the scenes of the crimes committed by the escapees to attend to the wounded and cart off the dead. All fine and noble, but in their ill-considered attempts to help they are creating anarchy. They are making various state capitalist precedents which have no pattern or direction but will open us up to the depredations of every business lobby and special-interest group. - Nicholas von Hoffman
Of course the biggest collateral damage caused by Paulson's bazooka is the large hole ripped through the already tattered U.S. Constitution. If the government can do this, does anyone believe there is anything it cannot do? In effect the Federal government now has absolute power to corrupt absolutely. - Peter Schiff
By telling Americans that their deposits were insured by the federal government, Washington desensitized generations of Americans to risk from bank failures. Now that risk is apparent and menacing to many Americans with deposits above the $100,000 FDIC insurance cap, as reflected by the user traffic on the IRA [institutional Risk Analyst] web site. Not only have we seen the search requests on our site over the past six months shift from large, publicly traded banks to smaller private banks, but the volume of search requests on our demonstration tools has risen five-fold and continues to rise. We interpret the changes in traffic patterns on the IRA web site as growing evidence of a slowly but steadily building retail bank panic. Older Americans particularly are running scared, pulling funds out of still solvent and safe institutions for fear of losing their retirement nest eggs. - Christopher Whalen
The freedom of individuals from compulsion or coercion never was, and is not now, the normal state of human affairs. The normal state for the ordinary person is tyranny, arbitrary control and abuse mainly by their own government. While imperfect in its execution, the Founders of our nation sought to make an exception to this ugly part of mankind's history. Unfortunately, at the urging of the American people, we are unwittingly in the process of returning to mankind's normal state of affairs.... There is no question that if one were to ask whether we Americans are moving toward more liberty or more government control over our lives, the answer would unambiguously be the latter - more government control over our lives. We might have reached a point where the trend is irreversible, and that is a true tragedy for if liberty is lost in America, it will be lost for all times and all places. - Walter E. Williams
Are we in the process of nationalizing the economy and moving toward a socialistic state? Will this $1 trillion save the nation or will it actually drive America ever closer to financial insolvency through massive accumulations of outstanding debt? And is the American taxpayer expected through "patriotism" to foot the cost of huge corporate failures? Sorry, but I'm not buying this rush to bail out Wall Street until I see some clear answers. - Paul M. Weyrich
To state the obvious, bailing out the bozos for whom 20 or 30 million a year just wasn't enough is not going to "test" well in public opinion polls. Maybe the representatives from the Upper East Side of Manhattan or greater Greenwich, Conn., can claim that in voting yes, they were truly serving their home constituencies, but for virtually everyone else, this looks like Robin Hood gone wrong - stealing from the poor to help the rich, not the other way around. Most of us would love to see the Wall Street billionaires and multimillionaires drown in their own debt, if they were the only ones who would. Let them taste what the rest of us deal with every day. Do I care that the boys in the banks are facing disaster? Not even a little. - Susan Estrich
A bailout will not buy the U.S. a way out. The government is less powerful than markets in fixing this mess.... We live in very uncertain times and nobody knows the extent of the damage from the slowdown of credit growth. It will be good to diversify. Most of the investment community are focusing on the financial crisis. But what they should be focusing on is that earnings will continue to disappoint for a long time, and that global growth is going to go down substantially. Most economies already today are in recession. - Marc Faber
The.... Bush Administration with cooperation from Congress is going to waste $250 billion to $700 billion more at a bare minimum fighting an economic slowdown that is coming no matter how much money is wasted. I suspect the total will $trillions before all is said and done.... Regardless, the market will eventually come to the realization that this bill is not going to create any jobs, spur lending, help the stock market, or put sour consumers in a better state of mind. Instead, $250 billion was just wasted with more (up to $700 billion total) coming. There is always a chance the next president (Obama) comes to his senses and does not ask for whatever Bush and Paulson do not waste, but I suspect the entire $700 billion may be long gone before Obama is sworn in. - Mike Shedlock
Basically they gave Congress a ransom note: "We've got your 401(k) and if you want to see your 401(k) alive again, give us $700 billion in unmarked bills". - Brad Sherman [D-Calif.]
Understandably, men and women with astringent minds find it hard to comprehend how systemic - and crushing - is the stupidity among corporate, political and academic elites. But they had better believe it. This is the age of the idiot. Bailout Boys Hussein and McCain are asses with ears - every bit as bad as they seem. Psychologizing about - or rationalizing - their motives only gives these intellectual tabula rasa more credit than they deserve. - Ilana Mercer
It is possible to look down the road and see exactly where Paulson's plan leads. The United States would borrow more and more from foreign governments in order to finance increasing giveaways from our national treasury. In return, these countries would get our remaining home appliance, automobile, motorcycle, mining equipment, high-tech and aircraft production industries. Eventually, the ever-increasing U.S. government borrowing would cause the U.S. government's credit rating to collapse. The only way to prevent the complete collapse of the United States government would be either to repudiate or to inflate away its debt. The United States would be left impoverished, while the anti-democratic communist government of China would come to dominate the world. - Howard Richman, Raymond Richman and Jesse Richman
I recently heard a story told by a 90-year old man who lived through the Great Depression. He was from a large farming family. During the Depression they couldn't feed all the kids so the older boys drew straws to see who would leave the farm. He and another brother drew short straws and left the next morning with a loaf of bread each. He slept in culverts, nearly starved to death (he started to cry as he recalled a woman who saw he was hungry and gave him cornbread), but he kept walking because to go back would only add to his family's almost unendurable hardship. He walked 82 miles before he found a farmer who took him in to milk 17 cows. He worked for two years for room and food and one pair of coveralls. Now, looking around at the financial sinkhole our country is in, this man said: "Things are going to be worse in our future than ANYTHING I've lived through". - Sean Brodrick
My view of the financial crisis is that it is going to last a long time, and that there will be no easy fix, even if we had some really smart people trying to solve the problem, which we do not. Three weeks ago most congresspersons had no more awareness of the problems we are facing than the man on the street. How much confidence do you have that the very people who caused the problem are suddenly going to become smart enough to fix it? In my opinion, they are only going to make it worse. Bottom Line: Stocks are way overvalued and the economic outlook is dismal. The only long exposure that should be considered is on a short-term basis when the inevitable bear market rallies occur. - Carl Swenlin
The new low in the financial crisis, which has prompted comparisons with the 1929 Wall Street crash, is the fruit of a pattern of dishonesty on the part of financial institutions and incompetence on the part of policy makers. We have become accustomed to the hypocrisy. America's financial system failed in its two crucial responsibilities: managing risk and allocating capital. Regrettably, many of the worst elements of the US financial system - toxic mortgages and the practices that led to them - were exported to the rest of the world. - Joseph Stiglitz
Greenspan was considered a master. Now we must ask ourselves whether he is not, after Osama bin Laden, the man who has hurt America the most. - Giulio Tremonto [Italian Economic Minister]
I think we'll live to regret bailing out the Banksters instead of putting them in jail, and we'd have been better off saving the money to put it into soup kitchens than race tracks and rum and wooden arrows. - George Ure
As the details behind the current debacle are unraveled, we see how government created one more entitlement - the right to own a house - and then devised an array of programs to subsidize in various ways "affordable housing." Like all welfare programs, the subsidies succeeded in influencing behavior, but the wrong behavior. - Star Parker
But what if the various countries, one by one, decide to guarantee deposits in order to protect their own banks? If you are an international corporation, especially if you are outside the US, do you want your $10 million in Europe or the US if Europe guarantees your deposits with no limit? Could we see silent runs on US banks? I think it is about an even chance that the government will have to guarantee for a period of time (say 6 months to a year) every bank deposit, regardless of size, in the US. - John Mauldin
As the political picture of the 2008 electoral transition comes into clearer focus, personality parallels with the 1929-39 period appear. The current presidential candidates eerily mirror the Presidents who presided over the Great Depression. John McCain is Herbert Hoover, full of populist denunciations of Wall Street that clearly come from the heart, but devoid of effective solutions to the economic problems the US faces. We can imagine McCain in the White House, after a year or so during which the economy proves recalcitrant, adding to the national pessimism by scowling angrily for the cameras at a fate that has left him confronted by a problem he cannot solve - or possibly borrowing some leftist solution like Hoover's 1932 tax increase that makes matters much worse. As in 1931-32, the electorate would soon be counting the days until 2012, when another choice could be made. As for Barack Obama, he is nothing more nor less than Franklin Roosevelt, empty rhetoric and all. "We have nothing to fear but fear itself!" rivals "Yes, we can!" in its mindless uplift and lack of specificity. Like Roosevelt, Obama would be full of clever ideas to solve the nation's economic problems; like Roosevelt's, his ideas would mostly be half-baked leftist panaceas that did more harm than good, prolonging the downturn and leading the nation a substantial distance further towards the nightmare of the leviathan state. His rhetoric is so good, however that the electorate would not notice his economic failures and would happily re-elect him as they did Roosevelt in 1936. - Martin Hutchinson
As we are witnessing today, the issue is not some manageable amount of new "capital" to replenish banking system losses. Instead, the predicament is the massive and unmanageable amount of new credit necessary to, on the one hand, sustain a mal-adjusted Bubble Economy and, on the other, the trillions more required to accommodate a gigantic speculative de-leveraging. I have a very difficult time seeing a way out of this terrible mess. - Doug Noland
Sure, cold facts and statistics help us grasp the enormity of the crisis. But look at how this tempest is hitting people like those we know and love: James owns a family lumber business in Birmingham founded in 1946. But his access to credit to buy inventory has dried up. He's had no choice but to fire 18 of his closest friends - just to survive. Jon's grandfather opened a small Vermont print shop back when L.B.J. was president in 1967. But his bank slashed his line of credit, making it impossible for him to buy ink or paper. Now, Jon and his 19 workers are wondering how they'll feed their families. Chris owns a software development firm and was expecting a series of wire transfers from his customers when he heard that his bank had failed. He hastily tried to call his customers to stop the wires, but it was too late. The money had hit his account just before the failure. It was uninsured. And he lost close to $500,000.... I just got a concerned call from a teacher whose home transaction fell through. The banker pulled the plug on the mortgage at the last minute. She was stunned, confused. I got another call from a retired friend whose wife has cancer. He had told his broker to buy only "conservative" investments. So he thought he had all the money he needed to pay their medical bills. But every single investment is down, or worse, down the tubes. Now he's desperate for a solution. - Martin Weiss
When George W. Bush backed and later signed the bailout bill, he put a coda to his legacy and my respect. I voted for the man twice even when his 'compassionate conservative' persona was getting his, and our, butt kicked on any real legislation that could have saved our economy. It's like finding out 4 years after the wedding that the woman you married was really the town whore. - anonymous Internet post
The 29-year-olds on Wall Street and Bay Street have been driving Maseratis. That's about to change. All these guys are going to have to learn to drive taxis. - Jim Rogers
From everything I see, it looks like a very hard, cold winter coming up. The picture looks increasingly like a coming global recession or worse. Move into cash and gold bullion as far as you can. - Richard Russell
The next step of this panic could be the mother of all bank runs, i.e. a run on the trillion dollar-plus of the
cross-border short-term interbank liabilities of the US banking and financial system, as foreign banks start to
worry about the safety of their liquid exposures to US financial institutions. A silent cross-border bank run
has already started, as foreign banks are worried about the solvency of US banks and are starting to reduce
their exposure. And if this run accelerates - as it may now - a total meltdown of the US financial system could
occur. - Nouriel Roubini
For some time I'd been giving odds for a systemic failure. When the failures arrived, I started to give odds for a systemic collapse. Now that the collapse has arrived, no more odds.
I suppose I could give odds on whether we'll have just a recession, or tumble into a depression. Or odds for whether we'll proceed directly to or below fair value for the Dow, which is in the low- to mid 7000s, or whether we'll get there over the next year by a more torturous path.
But at the moment I just don't have a good feel for these scenarios. I need a little more time to see how the asset deflation progresses.
All we need to know for the moment is that "Timer's Trend" (not shown in this issue) is solidly negative and traditional stock investments should be shunned like the plague.
Wait for some sort of all-clear signal before you re
enter. If you must bottom-fish, select only stocks in
a grossly out-of-favor sector which are in a rising
trend in the current turmoil.