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Extreme market volatility: blame it on Bernanke and Paulson – revised ‘bailout’ bill.

Posted by Adrian on October 3, 2008

Already recognized as one of the most unpopular bills the senate in the US has ever orchestrated. Knocked back once because of voter displease, now revised in an ‘ad hoc’ way which will still cause the congress to vote in an uneasy majority.

The US is going into a prolonged recession, with US unemployment numbers coming in at a seven year high, motor vehicle sales down and literally every indication that the US is in recession or heading towards a nasty one. This revised ‘bailout’ bill will have no effect on the greater economy, this is factual. A government money infusion to any bank that puts it’s hand out, maybe even the possibility of private business (non banks) getting bailed out too, makes no sense. To capitalize business when the market hasn’t even stabilized is crazy talk, in fact the US housing market is still collapsing. So essentially if you were a bank that just got bailed out, you would not reinvest into an unstable market. You would like any investor, or business shrink down your business model, horde cash and sit it out. Which is what the banks will do on this bail out proposal. It could be argued that this so called ‘700 billion’ revised bail out proposal is more token to restore confidence in the stock market. Not the wider markets, it’s actually quiet deceptive. Orchestrated by a ex-banker Henry Paulson, who would know that a ‘crisis of confidence’ or confidence in the market can make money and lose money. So, if you were to agree to this bill, you would from a perspective of a short term gain on banking stocks – as they will rally significantly once this revised bill is passed. It is a quick fix for Wall Street, not main street. It’s gambling with tax payers money. Thus is the nature of clueless politicians and ex-bankers trying cash in before the shit storm really kicks in.

But gamblers who are desperate make rushed and poor decisions, the market volatility is a good bell weather to the bill proposal. The market doesn’t really accept that the bill it’s self will save the US economy, in fact the market knows that this bill will do very little except a short term rally on the Dow Jones and S&P 500.

(Dow and S&P 500 graph is in real time)

Inflation hasn’t entirety disappeared, despite the slowing US economy, and Europe’s dramatic slowdown. So most traders and investors are aware the pressure on the US dollar, of late there has been currency swaps by central banks. Buying the USD. The USD will suffer on this bill, if it is successfully passed this time. The Federal Reserve with other central banks, may cut rates simultaneously. The credit market will still be frozen despite the bill passing in congress. As banks unload worthless toxic assets onto the US taxpayer (billions of dollars worth of junk), the market will then see which banks are essentially dead, to be revived as zombies by the US government. One has to wonder how the hell these business will return to profit, if at all. The con job would be exasperated further as banks (mentioned earlier) start to horde.

VIX heading towards 50

(VIX graph is in real time)

So, with an extremely unstable consumer market, that is in recession. It is a pipe dream to believe that liquidity being pumped into the credit markets will revive them.

The whole process (bail out and rate cuts) looks unstable and unreliable, hence I can’t see banks beginning to loosen up liquidity and lending to each other.


One Response to “Extreme market volatility: blame it on Bernanke and Paulson – revised ‘bailout’ bill.”

  1. […] Also refer to the VIX all time high […]

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