Are You Kidding Me?

No, I’m not talking about the bailout of Fannie Mae or Freddie Mac. I’m talking about the main reason Paulson gave for the bailout. He talked about the lack of capital, the accounting uncertainty, the quasi-government status and the prudent mortgage purchases. But his main reason for the bailout was “Fannie Mae and Freddie Mac are so large and so interwoven in our financial system that a failure of either of these would cause great turmoil in the financial markets here at home and around the globe. This turmoil would directly and negatively impact household wealth from family budgets to home values to savings for college and retirement. A failure would affect the ability of Americans to get home loans, auto loans, and other consumer credit and business finance, and a failure would be harmful to economic growth and job creation.”

Are you kidding me?!?

I’m sorry I didn’t record his last speech on the Bear Stearns bailout because it was the exact same speech. Who’s next? Detroit’s in line. GM, Ford and Chrysler all with their hands out. And what about the banks who are all holding the auto loan paper? They probably could use a little bailout. After all, there are more auto owners than home owners. Isn’t there a systemic risk when their debt paper collapses. Of course most average Suzy and Joe own only one house, probably two cars, or maybe three ( one an SUV) but there is no question they all have multiple credit cards. When the credit card market collapses is Paulson or Bernanke going to ride to the rescue of the credit card companies such as CitiBank and American Express? Won’t that be a major systemic problem? Wait a minute…there will be a new administration and just possibly these two jokers will be off fishing someplace. Which begs the question, if as Bernanke and Paulson said just weeks ago that the Fannie and Freddie problems were under control, of course they also said that about housing, why the bailout now? Obviously they couldn’t wait to pass it off to the next administration.

The Titanic was sinking and was not going to reach port.

How will the market and pundits react? I believe the initial reaction will be extremely positive. We may see a big stock market rally, most certainly prime time praise and accolades and maybe even Knighthood or Sainthood for Hank and Ben. However, when the smoke clears and the dust settles the same old problems of too much leverage, over extension and consumer exhaustion will once again be front and center.

All that has happened is that the inevitable has been postponed.

No kidding.

Till next time,

Bill

Ps: Fade the Euphoria

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