Despite the hue and cry among the officialdom in favor of the bailout bill, the reading we have gotten from professional investors, some of them with very high level connections, and economists among our readership and personal network is strongly negative. Nevertheless, by making the bill a de facto ultimatum (“do this or we do nothing”) when there were other options for addressing the credit crisis, the Treasury assured a strongly negative market reaction when the bill looked to be in jeopardy (and in fact the Fed has pulled out the stops, but the popular media pay little heed). The specter of the stock market plunging has created panic, and the electorate is responding accordingly.
Sadly, the odds of getting a better bill were not high independent of the pushback. The House Republicans in most cases were opposed for ideological reasons, that the bill was too “socialistic” for their taste. The real issue is that the bill does little to nothing to address the acute aspects of the crisis, namely the seize up in the money, particularly the commercial paper, markers. There will be a brief psychological boost, then back to status quo ante.
From Bloomberg:
President George W. Bush and Senate leaders vowed today to revive a $700 billion financial rescue plan amid evidence voters and lawmakers regretted yesterday’s U.S. House vote to kill the bailout.
Senate Republican leader Mitch McConnell of Kentucky predicted lawmakers would wrap up work on the plan by the end of this week. A plunge in U.S. markets, partially erased today, makes it clear Congress must act, he said….
Voters flooded Capitol Hill offices today, decrying the defeat of the rescue package, a House Republican leadership aide said. Prior to yesterday’s tally, lawmakers said sentiment was running about 100-1 against the plan.
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The short sale ban also ends on the day congress is supposed to be doing something. What ever happens the market, if the ban goes into effect, is going to have huge volatility. Paulson can just let the ban expire, and try and influence them to do what he wants. There are traders out there, and computers, that sell when the volatility spikes Remember, they can buy shares before the ban expires, and short them the day it does expire. Could be seeing the beginning of that too.
Bottom line, this is what you get when you change the rules in the middle of the game, people gaming the changes. Very good for confidence.
Where is Cox, did paulson eat him?
This is not over .
The NAR sent this campaign out to its members today…
excerpt:
“Dear ,
Main Street Needs Relief Now
Move beyond the debate over who is responsible and move towards a solution that will benefit REALTORS and the consumers we serve.
Please urge your members of Congress to support EESA.
By now you have heard that Congress failed to pass the Emergency Economic Stability Act (EESA). This is a critical time for our nation, and REALTORS everywhere need to call on Congress to enact a recovery plan that will end the economic crisis we are facing.
I have received messages from many of you, wondering why NAR is supporting this unprecedented government investment in financial institutions and the housing market. The truth is that consumers everywhere already are feeling the impact of the credit crisis. Many buyers can no longer find financing they need to buy a home, contracts are being pulled off the table, and sellers are taking their listings down. Without swift and substantial intervention, all REALTORS and the consumers we serve will soon face a market where:
Getting a mortgage, small business, or short-term loan becomes extremely difficult, even for good credit consumers and businesses.
Consumer and business bankruptcies rise significantly, as refinancing options are shut down.
Lines of credit are reduced and interest rates on personal and business credit cards rise, adding to the burden on families.
Consumer and business spending declines, further depressing the economy.
Unemployment increases significantly.
Budget deficits increases noticeably due to declining revenue collection at all levels of government…..”
This sounds like BS to me. A 7% drop in the index is the point of pain which causes Joe six pack to cry enough – take the 700 billion.
I think its weak-kneed poiliticians who were told this am – look what you did, you caused this. didn’t we tell you. You better vote the bill through or it will get worse.
Sounds like some ‘Shock Therapy’ to me. What do you think Naomi Klein?
I think we saw the market operate freely on the downside for the first time in a year. We saw what things look like sans the PPT.
Like Andrew Jackson and Biddle in another Federal reserve bank battle – the FED shows they need to be killed b/c they exert too much influence. They can manipulate things to prove a point.
And that is just what they did yesterday.
Chided politicians will now do their bidding.
The funniest thing is I truly believe Joe Six pack’s view changed little after the market drop. Did he even know it happenned? The about face by voters sounds like a ruse.
this is a must read, easy-to-read, article on how Paulson et al manipulates the stock market:
http://www.informationclearinghouse.info/article17251.htm
A small part of me believes this bailout was presented by Paulson so Goldman’s kimono is never lifted. When you look at the AIG rescue (Goldman stood to lose 20 billion) and the timing of the short selling ban, you begin to wonder. I’m not much of a conspiracy theorist, but color me skeptical. I can not think of any other reason for Paulson pushing this plan when the gold standard of bank bailouts, the Swedish method, sits on the sidelines.
I agree with those who think the short sale ban will be extended another 30 days since that oh-so-conveniently brings us to the election.
My personal view is that this bailout package is for a favored few, and will do nothing to fix the difficulties.
That is why it was presented in such an odd way.
I called my House rep’s Washington office this morning and re-iterated my vehement objections to the bailout. Since he voted to support the bailout I’ve told his office in no uncertain terms that as of now, I’ll not only vote against him in November, I’ll be actively campaigning against his re-election. His only hope of retaining my support is to change his vote to NO if this issue comes up again this week.
Paulson should be sacked for presenting such an insulting initial proposal to Congress and refusing to support any alternatives. Don’t fool yourself into thinking any of the House revisions would have any practical effect on restraining Paulson from blowing through the whole $700 billion well before the next president is elected.
Given the 100-to-1 sentiment running against this proposal, any congressional rep voting for this naked money grab should expect to be looking for a new job this November.
My firm (former ibank) sent out a “contact your representatives and tell them to pass that bailout” mail yesterday. I’m sure other firms put out the same message.
… think we saw the market operate freely on the downside for the first time in a year. We saw what things look like sans the PPT.
…and then manipulated to the upside today. The financial wealth of US is pension funds, a large percentage of this baby boomers. Yes, they have been brought up on expectations of privilege, including the right to profit in the stock market.
Those expectations are now being manipulated by Paulson, et al where the market has been trading in a very narrow range during a year of bad news for the economy, and suddenly left to plunge to a realistic level at exactly the opportune moment to produce an outcry for this plunder.
to coin a phrase, Its like taking candy from a baby.
The short-sell ban will almost surely be extended, no need to worry about the 10/2 date.
Hey DG, no conspiracy theory required to recognize society as class divided. The dominant class and its managers, the ruling elite, may to degreees overlap but are not identical. Then as well, the dominant class tends to be competitively segmented with one or another group exercising most authority over the political elite. Between the early 1970s and mid-1980s, authority shifted from industrial to financial and, until recently, the latter apparently came to forget its inherent dependence, which now plays out as, at the least, a demolition of ‘market knows best’ ideology.
New possibilities arise.
Perhaps a positive aspect of the revised bill will be increased FDIC limits; I’ve heard revised to $250,000.
When does he have to decide to extend the ban? Can he/they wait until after a house vote, they decide……Please tell me someone else out there understands what I am getting at.
The end of the quarter is today, surprise stocks are up on very light volume.
Yesterday was triggered by the short selling ban in reverse. There was on one covering shorts on the way down, this is a text book example of what exactly short sellers do in the market, they help moderate volitility.
Just look at the prices of the banks between today and yesterday, has anything fundamentally changed? The end of the quarter, probably part of it, but besides that what?
Nothing that would account for 50% swings in these stocks, and especially on the upside today.
Anyone who believes that the stock market takes it cue from congress has it backward, the bill goes the other way, wall st pays congress.
Just came across this in comments at Big Pic. Leveraged UGH.
“”One variation I heard is that Paulson’s buddies will form new companies and have G-Sax leverage loans and convert debt into equity that way as a way to keep up shareholder equity – then they will sell at the artificially high price back to others like them in a mini – bubble. They will steal the money the same way they stole it before, what a surprise” Posted by: gene”
The leadership controls the message, but they have not controlled the vote. How many times have we heard “we have reached agreement”?
Nobody knows what is going to happen next. I am hopeful we can get Yves to replace Paulson.
Can you believe the gall of our “leadership”? Now they are telling the very people that they are asking for a bailout that we don’t understand the bill and the problem and now it is really a “rescue or investment” not a bailout. Americans understand what is at stake very clearly, the future; politicians only see the present; greed.
Get ready for a false floor in home prices and 50 to 70 yr mortgages for your children and grandchildren.
The real issue is that the bill does little to nothing to address the acute aspects of the crisis, namely the seize up in the money, particularly the commercial paper, markers. There will be a brief psychological boost, then back to status quo ante.
But Yves, the person quoted in your earlier post said that the problem can be solved by juicing up FDIC, money market guarantees, and Fed lending to banks directly instead of interbank lending. So, the bill may not solve the problem, but don’t you believe those other measures will?
This is … it’s a big, big deal and a turning point.
This is where I short capitalism.
The bailout will pass, the money will be spent, nothing of any import will happen to change the underlying market conditions. The derivatives will work their evil … This will just have to burn itself out …
My fuse panel is overloaded.
Where is R. Crumb when we need him?
What does it all mean, Mr. Natural?
Don’t mean sh*t!
Yeah, sure, as if stocks cannot be sold to lessen exposure. No one I know has changed his mind, and we all have money in the market. BTW, were the same people who sold yesterday buying today? It’s all pretty funny, as long as you don’t let yourself become too cynical.
I expect the ban on short selling to be extended — they still need a bogey-man. Although admittedly the chances of this lessen when/if they pass a bill.
If it were not so serious it would be high comedy. First the calls were 100 against bailout. Then the market drops and the number suddenly reverses.
I am reminded of Danny Kaye in the “Court Jester”
http://www.youtube.com/watch?v=LS75NtlH3gI
enjoy
plschwartz
Mark Hulbert wrote an article about the short selling ban a few days ago:
===========================
September 28, 2008
Maybe Short-Selling Isn’t So Bad, After All
By MARK HULBERT
FEDERAL regulators have banned short sales of more than 800 stocks, mostly of financial companies, in an effort to stabilize prices in a shaky market. But the move may have an unintended consequence: reducing the stock market’s efficiency and prolonging the current crisis.
That’s the consensus of several finance professors who have devoted considerable energy to the study of short-selling — a mode of trading in which a profit is made from a price decline. Short-sellers, like investors who go “long” on a stock, make money by buying low and selling high. The difference is that short-sellers reverse the usual chronological order, selling first and buying back later, at what they hope will be a lower price. They accomplish this time switch by selling borrowed shares and agreeing to return them later.
Were short-sellers ganging up on various stocks in the recent tumult, causing prices to plummet? Adam Reed, a finance professor at the University of North Carolina at Chapel Hill who has extensively studied short-sellers’ behavior and its effects on the markets, said it was “hypothetically possible” that they were. He added, though, that the question still needs study because real-time information about these possible “bear raids” isn’t available. But he would be surprised if short-sellers were a major cause of the market’s turmoil over the last year.
“In recent years,” he said, “when academic researchers have looked for bear raids — even in those areas in which investors suspected that they existed — they haven’t found them.”
Full article
======================
A friend of mine pointed me to a post on kudlow’s site that claims the revised bailout they are working on is loaded with a lot more socialist items. “bankruptcy judges setting mortgage terms and rates, the ACORN slush-fund spending, the union proxy for corporate boards, stricter limits on executive compensation, and much larger equity ownership of selling banks through warrants will all find itself back in the new bill”
She also mentioned the transaction tax was being added, but I think this might have also been in the first version that failed. This second revision is starting to sound even scarier. I just finished reading Hayek’s Road to Serfdom and that was an eye opener.
Yves, fantastic blog. New to posting here, have lost a bunch of sleep keeping up on the reading.
Just a scary post. After reading this, I started to rewrite all of my senators/reps. When I went to the House Rep Site, my computer immediately went blank, then mysteriously restarted about 1 minute later. All windows and websites open.
Keep up the good work. This “rescue bill” must fail.
“Perhaps a positive aspect of the revised bill will be increased FDIC limits; I’ve heard revised to $250,000.”
Does the FDIC have enough money to back the $100k they’re backing now?
On a side note, I know Ireland doesn’t have the money to back their system, and unlike us, they don’t control their currency. Hopefully it won’t come to it, but if things get worse, that’ll be ugly (or we’ll see the return of the Irish pound).
I think they’re flat lying about the calls. This is manipulation.
America for socialism? USA is not a democracy state anymore. The Congress is control by the Wall Street Bankers.
You can have a re-vote anytime?
THIS IS CRITICAL: Please fax AND phone your congressman. Do not bother with any members of the House except for Nancy Pelosi.
Call them with this simple message “If you vote for this bill, you will lose my vote”.
Click Here For Congresional Phone And Fax Numbers
Senate Fax List
Please fax everyone on this list.
Sen. Richard Shelby (R) 202-224-3416 or 202-224-5137 (try both not sure which is correct)
Sen. Harry Reid (D) 202-224-7327
Sen. Jim DeMint (R) 202-228-5143
Sen. John Ensign (R) 202-228-2193
Sen. Jim Bunning (R) 202-228-1373
Sen. Chuck Grassley (R) 202-224-6020
Sen John McCain (R) 202-228-2862
Sen. Barack Obama 202-228-4260
Sen. John D. Rockefeller 202-224-7665
Sen. Dianne Feinstein 202-228-3954
Sen. Ron Wyden 202-228-2717
Sen. Evan Bayh 202-228-1377
Sen. Barbara Mikulski 202-224-8858
Sen. Bill Nelson 202-228-2183
Sen. John Kerry 202-224-8525
Sen. Daniel Inouye 202-224-6747
Sen. Hillary Clinton 202-228-0282
Those inclined should also fax their own senators as well.
I, too, am more than deeply skeptical of pronouncements _now_ that “calls to Congress have swung the other way.” We are deep in the territory of Any Lie Will Serve. Congress knows that this bill is viciously unpopular, and many of the House members who voted Nay have said on record that they did so for fear of their constituents’ wrath. Congress is into ‘managing the message’ since the bullrush hit the wall, and trying, desperately I may say, to find a supposed price in silver that will buy the votes of twelve Nay-sayers in the House. I don’t have much hope in the Senate (never did), but I’ve been surprised a tad so far. Let us pray for more fireworks on Wednesday. Notice for how the vote was scheduled for after the markets and the evening news wrap up? I never had less respect for the institution of the US Congress than today—and I never had any at all, which tells you how I feel about this. If the outcome from these votes may cost less dearly in lives than the enabling vote for the attack upon Iraq, it sill demonstrates an even lower standard of governance in that body. Only the Earl of Hell and his Bailiff are laughing from the heart on this one. : (
Wait somebody explain, how can the senate originate a spending bill? Isn’t that one of the powers reserved for the house? How can the senate take up the bailout plan? Isn’t it essentially a spending bill?