What a day. What a week. Time for a cigar and a drink...okay many drinks. Everyday should be like this but we need to stop living through history making times for awhile. We finished back above the bottom of the 2005 base. There is still plenty of headroom on the charts to 255 or so. Note that we've rallied 30 points off the absolute low and both daily and weekly charts are still in sell mode. But the adventure continues next week. I will post over the weekend as i come across anything interesting. But frankly i need to get away from this for awhile.
joseph cioffi's Source Page - Associated Content
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I've been torn beteen 2 version of reality, and I'm not certain which is correct.
1) Paulson is an Idiot.
2) Paulson is a Genius.
With the Paulson is an Idiot senario, we all saw what had happened when common and preferred shareholders were damaged in the FNM + FRE bailout.
I can understand why the common shareholders took the hit, but why the preferreds ( mainly held by small banks ( even a small GSE Farmer Mae held 44 million )and insurance cos. (AIG held about 600 million in GSE preferreds)) when banks need all the capital they can get to begin to lend again?
This loss of investor confidence, combined with agressive naked shorting of financials caused both Lehman and AIG to be stressed much more than they would have in the very slow healing senario that was unfolding.
A link with a similar view (entitled "Treasury: "Honey, I Just Shot the Banks" ) that suggested that Paulson's policy error with the GSE preferreds would be a 400 billion dollar mistake ( on Sept 15 ).
http://www.nakedcapitalism.com/2008/09/treasury-honey-i-just-shot-banks.html
Respected Bloomberg Columnist Caroline Baum wrote of E-Mails she recieved brom disgruntaled investors who felt that they were betrayed by the Treasury:
"My inbox is already filled with e-mails from disgruntled investors who think the government led them astray with its reassurances that Fannie Mae and Freddie Mac were well capitalized. The government seized control of the two government- sponsored agencies that dominate mortgage finance on Sept. 7."
``The preferred stock that we purchased was issued by Freddie Mac at the request of the Treasury,'' and the GSE regulator ``maintained at that time, and subsequently, that the companies were adequately capitalized,'' one investment adviser wrote. "
http://www.bloomberg.com/apps/news?pid=20601039&refer=columnist_baum&sid=aFlr2F0ERImA
2) With the Paulson is a genius senario, Congress will only act to buy bad paper from the banks in a true crisis senario. In the (very)slow healing senario we had in late August, there would be no reason for Congress to take on a comprehensive solution because of the huge cost and political risk that would be involved. So If a crisis wasn't going to happen by itself, bad policy ( Cox + Paulson ) would bring it on sooner than later.
As for Bernanke, I believe ( with out any evidence ) he's smart enough to know that some of that actions taken by Paulson were policy errors, but for some reason Bernanke lacked the intestinal fortitude to either fight forcefully enough against these errors or threaten to resign publically in disgust if these errors were implimented.
HS
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