The Paulson Plan

Want to get a sense of exactly how expensive the Paulson Plan is?

1 million seconds is 11 days   

1 billion seconds is 32 years 

1 trillion seconds is 300 centuries 

If we take on as much debt as Paulson wants (well over a trillion dollars) and we pay it back at the rate of a dollar per second, it would  take 3 centuries to repay. And that assumes its "only" a trillion dollars . . .  it could be much, much more.

Watch the greenback go down the rathole.

Category: Bailouts

Chart of Day: Short Ban ‘Mother of All Squeezes’

click for ginormous chart   Bloomberg: The CHART OF THE DAY shows the jump in short interest this year in the six worst-performing financial shares in the S&P 500 – American International Group Inc., Washington Mutual Inc., National City Corp., Genworth Financial Inc., XL Capital Ltd. and Wachovia Corp. — along with the percentage of…Read More

Category: Short Selling, Technical Analysis

Fixing Housing & Finance: 30/20/10 Proposal

A Modest Proposal:  The housing crisis worsened over the summer of 2008, prompting Congress to debate various bailout proposals. But the housing market worsened, raising the default rate on mortgages. The entire inverted pyramid of derivatives built on top of the mortgage market further worsened, adding yet more pressure to the credit crisis. The bankruptcy of Lehman Brothers and the nationalization of AIG were the results.

The response to this financial crisis from the Treasury Secretary Hank Paulson borders on Insanity: An outrageous trillion dollar plus bailout, with the potential for unlimited expenditures at the behest of the Treasury Secretary. It is a terribly expensive plan, one that prevents judicial or administrative or budgetary review. It is fraught with moral hazard, rewarding bad judgment and excessive risk taking. It punishes the prudent and rewards the profligate.It focuses on all the wrong issues.

Worst of all, it is unlikely to work.

Most of the current solutions under discussion amount to throwing obscene amounts of money at the problem, rather than recognizing what the key issues are.

These approaches have several fundamental problems. The goals are less than desirable: 1) they attempt to keep people in homes they cannot afford; 2) The Paulson plan takes bad loans off of the books of poor lenders, and dumps them onto taxpayers; 3) They maintain price supports for homes that remain significantly over-priced. 

At the heart of the $700 billion dollar unlimited finance Paulson bailout is the desire to move weak performing or poorly made loans off of the books of the lenders who made them and onto the taxpayers back (likely via the FHA). To understand the folly of the this housing bailout, one must grasp the magnitude of the prior housing boom, as well as the historical norms that exists in the American housing market.

The current proposal moves bad mortgages from the irresponsible lenders to the innocent. It punishes every taxpayer who was prudent, and every homeowner that behaved in a responsible manner. It eliminates the sanctity of contracts, and allows judges to “cram down” mortgages.   

These may be desperate times, but they do not call for ill thought out, desperate measures. Rather than merely criticize the $700 billion dollar unlimited finance Paulson plan, I would instead like to propose an alternative approach, one that costs much, much less, and is more likely to be effective: The 30/20/10 Proposal.



Read More

Category: Bailouts, Real Estate, Taxes and Policy

Bailout Plan Threat to Dollar ?

Category: Bailouts, Currency, Taxes and Policy

Bill Moyers Speaks with NYT’ Gretchen Morgenson and Floyd Norris

Saving Capitalism from the Capitalists:

click for video

Read More

Category: Credit, Derivatives, Video

Short Selling Ban Spreads Around the World

Category: Legal, Markets, Short Selling, Taxes and Policy

Traffic Update (Bailout Edition)

Several of you have written asking exactly how much traffic has spiked this week, and what it might mean in terms of a rally. Its a little complicated, but here are the details: As noted last week, September 15th was our first 100k+ day. The rest of the week was even busier: Traffic was nearly…Read More

Category: Contrary Indicators, Psychology, Technical Analysis, Trading, Weblogs

October 18, 1930: NYT on Short Selling

Category: Financial Press, Markets, Short Selling

Bill Moyers & Kevin Phillips on Bad Money

Bill Moyers sits down with former Nixon White House strategist and political and economic critic Kevin Phillips, whose latest book BAD MONEY: RECKLESS FINANCE, FAILED POLITICS, AND THE GLOBAL CRISIS OF AMERICAN CAPITALISM explores the role that the crumbling financial sector played in the now-fragile American economy.

click for video

September 19, 2008


Read More

Category: Bailouts, Currency, Economy, Video

Intrade Election Update, 9/20/08

Category: Options, Politics