Best of the Week
Most Popular
1. 2019 From A Fourth Turning Perspective - James_Quinn
2.Beware the Young Stocks Bear Market! - Zeal_LLC
3.Safe Havens are Surging. What this Means for Stocks 2019 - Troy_Bombardia
4.Most Popular Financial Markets Analysis of 2018 - Trump and BrExit Chaos Dominate - Nadeem_Walayat
5.January 2019 Financial Markets Analysis and Forecasts - Nadeem_Walayat
6.Silver Price Trend Analysis 2019 - Nadeem_Walayat
7.Why 90% of Traders Lose - Nadeem_Walayat
8.What to do With Your Money in a Stocks Bear Market - Stephen_McBride
9.Stock Market What to Expect in the First 3~5 Months of 2019 - Chris_Vermeulen
10.China, Global Economy has Tipped over: The Surging Dollar and the Rallying Yen - FXCOT
Last 7 days
Stock Market Trend Analysis 2019 - Video - 18th Mar 19
Best Precious Metals Investment and Trades for 2019 - 18th Mar 19
Hurdles for Gold Stocks - 18th Mar 19
Pento: Coming QE & Low Rates Will Be ‘Rocket Fuel for Gold’ - 18th Mar 19
"This is for Tommy Robinson" Shouts Knife Wielding White Supremacist Terrorist in London - 18th Mar 19
This Is How You Create the Biggest Credit Bubble in History - 17th Mar 19
Crude Oil Bulls - For Whom the Bell Tolls - 17th Mar 19
Gold Mining Stocks Fundamentals - 17th Mar 19
Why Buy a Land Rover - Range Rover vs Huge Tree Branch Falling on its Roof - 17th Mar 19
UKIP Urged to Change Name to BNP 2.0 So BrExit Party Can Fight a 2nd EU Referendum - 17th Mar 19
Tommy Robinson Looks Set to Become New UKIP Leader - 16th Mar 19
Gold Final Warning: Here Are the Stunning Implications of Plunging Gold Price - 16th Mar 19
Towards the End of a Stocks Bull Market, Short term Timing Becomes Difficult - 16th Mar 19
UKIP Brexit Facebook Groups Reveling in the New Zealand Terror Attacks Blaming Muslim Victims - 16th Mar 19
Gold – US Dollar vs US Dollar Index - 16th Mar 19
Islamophobic Hate Preachers Tommy Robinson and Katie Hopkins have Killed UKIP and Brexit - 16th Mar 19
Countdown to The Precious Metals Gold and Silver Breakout Rally - 15th Mar 19
Shale Oil Splutters: Brent on Track for $70 Target $100 in 2020 - 15th Mar 19
Setting up a Business Just Got Easier - 15th Mar 19
Stock Market Elliott Wave Analysis Trend Forercast - Video - 15th Mar 19
Gold Warning - Here Are the Stunning Implications of Plunging Gold Price - Part 1 - 15th Mar 19
UK Weather SHOCK - Trees Dropping Branches onto Cars in Stormy Winds - Sheffield - 15th Mar 19
Best Time to Trade Forex - 15th Mar 19
Why the Green New Deal Will Send Uranium Price Through the Roof - 14th Mar 19
S&P 500's New Medium-Term High, but Will Stock Market Uptrend Continue? - 14th Mar 19
US Conservatism - 14th Mar 19
Gold in the Age of High-speed Electronic Trading - 14th Mar 19
Britain's Demographic Time Bomb Has Gone Off! - 14th Mar 19
Why Walmart Will Crush Amazon - 14th Mar 19
2019 Economic Predictions - 14th Mar 19
Tax Avoidance Bills Sent to Thousands of Workers - 14th Mar 19
The Exponential Stocks Bull Market Explained - Video - 13th Mar 19
TSP Recession Indicator - Criss-Cross, Flip-Flop and Remembering 1966 - 13th Mar 19
Stock Investors Beware The Signs Of Recession / Deflation - 13th Mar 19
Is the Stock Market Still in a Bear Market? - 13th Mar 19
Stock Market Trend Analysis 2019 - 13th Mar 19
Gold Up-to-Date' COT Report: A Maddening Déjà Vu - 12th Mar 19
Save Fintech? Ban Short Selling. It's Not That Simple - 12th Mar 19
Palladium Blowup Could Expose Scam of Gold & Silver Futures - 12th Mar 19
Next Recession: Concentrating Future Losses & Bringing Them Forward In Time As Profits - 12th Mar 19
The Shift of the Philippine Peso Regime - 12th Mar 19
Theresa May BrExit Back Stab Deal Counting Down to Resignation, Tory Leadership Election - 12th Mar 19
Phase 1 of Stock Market Correction - 11th Mar 19
Long Awaited Stock Market Pullback has Finally Arrived - 11th Mar 19
US Presidential Cycle and the Stock Market - Video - 11th Mar 19
Stock Market Elliott Wave Analysis Trend Forercast - 11th Mar 19
Chinese Economic Data Shakes the Global Stock Markets - 11th Mar 19
The Fed Is Playing a Dangerous Game - 11th Mar 19
The Stock Market Has Called the Fed’s Bluff, What’s Next? - 11th Mar 19
Turkey Holiday Bazaar Extreme Jewelry Price Haggling - Fethiye Market - 11th Mar 19
Are You Ready for the Next Big Move in Gold? - 10th Mar 19
Taylor Wimpey Reports £811m in Profits boosted by Help-to-Buy - 10th Mar 19
SPX Big US Stocks Fundamentals - 10th Mar 19
Yield Curve Inversion and the Stock Market 2019 - Video - 9th Mar 19
Various Stock Market Indicators are Plunging. Run for the Hills! - 9th Mar 19
Unsecured Debt hits £15,400 per UK Household - 9th Mar 19
QE4EVER Stock Market 2019 - 8th Mar 19
The Real New Deal - 8th Mar 19
How High Cost Credit Affects Financially Unstable Families - 8th Mar 19
Gold and Silver Precious Metals Pot Pourri - 8th Mar 19
Stock Market Downward Reversal? Stocks Still Relatively Close to Their Recent Highs - 8th Mar 19
Gold and the Political Theater: Is The Tail Wagging the Dog? - 8th Mar 19
Is Recession Near? - 8th Mar 19
Consumer Behavior: What you need to know to read your Audience - 8th Mar 19
The Exponential Stocks Bull Market - 7th Mar 19
Millennial Home Buyers Not as Active as Boomers Were in US Property Market - 7th Mar 19
KIND Elevates Nut Butter Category with a Wholesome Recipe - 7th Mar 19
Brexit Does Not Stop Bitcoin’s Growth in the UK - 7th Mar 19
How Private Sector Debt Bubble Could Trigger the Next Financial Crisis - 7th Mar 19
What Commodities and Transportation Stocks Telling Us - Part2 - 7th Mar 19
What Comes After a Trillion in Student Debt? - 7th Mar 19
Dear Stocks Bull Market: Happy 10 Year Anniversary! - 7th Mar 19
The Importance of Financial Planning for Companies - 7th Mar 19

Market Oracle FREE Newsletter

Stock Market Trend Forecast March to September 2019

Bernanke and Paulson Hoodwink American Tax Payers Into Buying Crap

Politics / Credit Crisis Bailouts Sep 24, 2008 - 09:17 AM GMT

By: Brady_Willett

Politics Best Financial Markets Analysis ArticleThe Treasury Secretary Paulson and Fed Chairman Bernanke bailout plan calls for $700 billion in taxpayer funds to be used to purchase assets that will in all likelihood be worth considerably less in the future.  As for the contention that the assets to be purchased could be worth more in the future than prices paid today, if there was any validity to this speculation the bailout plan in question would not be required as the assets in question would have already found a buyer.


Before continuing the above point needs to be stressed.  To be sure, there are willing and able distressed assets investors roaming the markets (i.e. Buffett took a position in Goldman yesterday). However, what these investors have concluded is that a lot of mortgage based securities are toxic in that they can not be accurately priced by any conceivable buy-and-hold model and/or that they are still being too richly valued by their owners. To even suggest that the Treasury is going to be able to employ someone able to successfully accomplish what many well healed foreign and domestic distressed interests have not is shameful. In other words, the bailout plan, at best, is an attempt to make a market based upon the grand speculation that such an action will unfreeze markets and not prove overly detrimental to the taxpayer.

With that out of the way, the sad truth is that Paulson and Bernanke have come to the crossroads of common sense.  They both know that the free market alternative, while preferable, would see more massive blow-ups in the future and that this, utilizing their policies, would compel the need for more bailouts.  Rather than further disgrace the sanctity of free market idealism and watch investor confidence crumble with the day-by-day bailout proceedings, they instead opted for the mother of all bailouts. In this regard they are trying to act a la Greenspan, or in a ‘preemptive' manner.

“I have never been a proponent of intervention…There is no way to stabilize the markets and deal with the situation other than through government intervention.”
Paulson

But while the preemptive action plan is understandable and perhaps even necessary to temporarily restore functionality in the financial mess that is the U.S. markets, that Bernanke and Paulson took turns trying to spin the bailout in an optimistic light yesterday is ridiculous. The $700 billion bailout is a desperate plan that could fail miserably, permanently damage the U.S.'s financial standing, and leave the U.S. taxpayer holding the bag. The way Paulson and Bernanke talk you would think that taxpayers should be lining up to donate more than $700 billion…

When Life Hands You Lemons Try To Make Lemonade

When asked by Sen. Jon Tester yesterday if the $700 billion bailout ‘could potentially affect the credit rating of the U.S. Treasury', Paulson avoided the question, adding that the $700 billion wasn't necessarily an expenditure. Astonishingly, Mr. Paulson also said “This is all about the American taxpayer.  That is all we care about…” Buying junk with taxpayer dollars shows that you care about taxpayers? Setting an artificial price for toxic assets is not expenditure?  

“This is not expenditure.” Paulson
“This is not expenditure.” Bernanke

The initial Paulson/Bernanke bailout plan was all of three pages long and was franticly cooked-up as the markets were collapsing. It reads like it was put together by a bunch of tyrannical toddlers playing with crayons.  Are we really to believe given the circumstances that this plan represents an opportunity and not an expenditure for U.S. taxpayers?

“This is not an expenditure of $700 billion. This is a purchase of assets, and if auctions are done properly, evaluations are done properly, the American taxpayer will get a good value for his or her money.”  Bernanke

Good value?  Well Mr. Bernanke, if buying the garbage stinking up the American financial system is such an opportunity why don't you partake in this adventure with some of your own capital? (I am quite sure the public would not mind if a few Chinese walls were broken down to allow Hank and Ben to invest some of their own funds in this scheme). Why not call the new plan ‘Opportunity USA', get the best minds in the industry to run the entity, and entice Greenspan, Bush, Gross, and other proponents of the plan to invest funds.  After all, under such a scenario it is not inconceivable that taxpayers dollars would start voluntarily rolling in to also invest.

But alas, the chain of events to create ‘Opportunity USA' is exactly how the free market works, and the free market has already spoken and told us that the crap to be so graciously purchased by the U.S. taxpayer is indeed crap.

Unable To Make Lemonade Try To Hike Up The Price of Lemons

By Bernanke and Paulson's own admission the plan in question would not be successful if assets were purchased at ‘fire-sale' prices.  I am sure that taxpayers (the investor's fronting this endeavor) would think much differently.  Which brings us to the crux of the situation: you can not protect the financial system and the taxpayer at the same time.  You focus on one – in this case the ‘system' – at the expense of the other.

“Just as when you sell a painting at Sotheby's, nobody knows what its worth until the auction is over. Then people know what its worth. I think the same thing here…” Bernanke

Some of the securities auctions this year have been canceled, others have been devoid of buyers, and still others generated bids for pennies on the dollar. But pay no attention to these auctions, because apparently it takes Bernanke, Paulson, and $700 billion to tell us what many securities are really worth.

By Brady Willett
FallStreet.com

FallStreet.com was launched in January of 2000 with the mandate of providing an alternative opinion on the U.S. equity markets.  In the context of an uncritical herd euphoria that characterizes the mainstream media, Fallstreet strives to provide investors with the information they need to make informed investment decisions. To that end, we provide a clearinghouse for bearish and value-oriented investment information, independent research, and an investment newsletter containing specific company selections.

Brady Willett Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules