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All of sudden the ‘free markets’ don’t feel so free. Wall Street should take the pain. Bank ‘bail out’ bill will be passed.

Posted by Adrian on September 25, 2008

The 700 billion (an underestimated amount for press release) bail out of the banks and Wall Street was not only a rushed and poorly thought out ‘plan’ to deal with a liquidity/bank crisis, the fact is the ‘crisis’ will remain even if this plan is passed through congress.

This plan, despite congress and various republican and democrats attempting to make amendments to the extraordinary one dimensional plan. That in all retrospective, even on paper says nothing of bailing out the US consumer. This is a bank bailout nothing more.

What is occurring in the markets, is a attempt at controlling market events. Many commentators have referred to this as a socialization of the US financial system on a large scale. Which is true, as mentioned in The Treasury and the Federal Reserve will bail out the WHOLE American banking system. (Updated 2) – All distressed debt on the table, cracks now appearing in the ‘plan’ USD sell off, commodities rev up, the Federal reserve will be keeping alive banking ‘corpses’ and the pays of upper echelon management. It is a slap in th face to the free market ideals, the over regulation that is creeping in to protect US capital markets, hence the ban on Hedge Funds short selling stocks. The craziness here is the ban of short selling reverberating around the world. As stocks/companies that the market feels are losing value and should be purged on the market place; now are thrown a life line. Of course the stocks and companies that are getting thrown this life line are the banks. Such hypocrisy in the market place.

There are problems of implicating too much intervention into free markets dynamics (seen with recent volatility), the question is how far will intervention go?

The excuse that Ben Bernanke and Henry Paulson have made in regards to the bail out proposal, that it will free up liquidity between the banks, hence they will function again, lend money and so on. I think this is bad assessment; liquidity will still remain thin, pricing is going to be a huge problem for ‘junk’ assets. The ‘bail out’ will have to cover extensively credit card debt. We have to then trust banking/business models to work, but human nature and risk will finally kick in; the banks will be stingy in their lending, even between other banks. Yes, they will have a lifeline thrown to them by the Federal Reserve, but to assume that a bailout’ will spur economic activity is a bet with odds staked way against it, a bet placed on behalf of the US taxpayer by a wealthy ex banker.

Wall Street should take the pain, but they won’t. This bill will be passed very soon.

The markets will react how they did when the Treasury and The Federal Reserve a week back, revealed the bail out plan. Large spikes in all the global indices, slight rise in the USD then a sell off. Markets to watch will be commodities, gold, oil etc.

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One Response to “All of sudden the ‘free markets’ don’t feel so free. Wall Street should take the pain. Bank ‘bail out’ bill will be passed.”

  1. […] in it’s entirety. The reason, it was from the start an unworkable concept. As discussed in All of sudden the ‘free markets’ don’t feel so free. Wall Street should take the pain. Bank …, there is no way the market value could be determined on toxic mortgage assets, therefor the […]

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