Finally, somebody with right mind save us from craziness of Bernanke, Paulson, Bush and all other idiots that try their ass out to destroy US economy.
Sure, Bernanke, Paulson, Bush and most other official are not the reason all this economy turmoil started, but they certainly are those who try to keep it running wild at us, the lower and medium class average joe.
The house of representative did the absolute right thing. You all have my applause.
The Dow Jones Wilshire 5000 Composite Index recorded a paper loss of $1 trillion across the market for the day, a first.
However, the house saved 700 billion ++ from flushing down to hell. They could save more trillions worth of cheap US dollar!
Dow drop 777, big deal! Here's my question to all the so-called expert: why can't dow drop 700+ point? why stock market can't fall?
The damage in the economy has already been done. No matter what happen to US and world stock market, economy still in turmoil. Remember this: stock market crash will never cause an economy collapse; economy collapse is the only reason stock market crash.
However, good time went away fast. Just 1 day after the great news, lawmaker plan another new bailout deal.
"Doing nothing is not an option," House Majority Leader Steny Hoyer, D-Md., said after seeing the $700 billion emergency package for the nation's financial systems fail 228-205 on Monday.
Surely that's another stupid person. Doing nothing is always better than doing destruction to the economy. They keep telling us that doing nothing is not an option and financial institutions will fall. However, Federal Reserve has been helping these companies from day 1 and some of it still collapse. Bear Stearns, Indymac, Freddie Mac, Fannie Mae, Lehman, AIG etc. has been helped by Federal Reserve all the way and they still down. So how can Federal Reserve prove financial companies will survive?
Today market will rebounded sharply as stupid traders will be bullish about the new bail out plan. Let them lose their money if they want. Dow and s/p 500 are going nowhere but grave. See you at 7400, Dow and 750 for s/p 500.
30.9.08
28.9.08
Hank Paulson: Man of the Moment
Henry Paulson works his butt off to get the 700 billion for his evil plan and will be forever known as one of the person responsible for the collapse of US economy. However, here's some information about Mr Paulson himself and i hope you enjoy it because he will definitely be on the economic book as the worst US secretary of Treasury ever!
He's the man who is getting $700 billion to bail out the nation's financial system. He personally drove the US government acquisition of insurance giant AIG and stepped in to engineer the nationalization of the formerly private mortgage behemoths Fannie Mae and Freddie Mac. He cajoled Jamie Dimon and Alan Schwartz to consummate the fire sale of Bear Stearns to JP Morgan Chase with a promise of $29 billion in financing from the Fed only to decide a few weeks later to allow the equally venerable Lehman Brothers to go into bankruptcy.
Move over Senators Obama and McCain and make way for the most powerful Treasury Secretary to come our way in modern times. He's Henry Merritt Paulson Jr., a.k.a. Hank. He leads a department that employs over 110,000 people and important institutions including the IRS, the U.S. Mint, and the FBI. But who is Hank Paulson? Where did he come from? What drives him? How has he changed since grudgingly agreeing to come to Washington in 2006 after a distinguished career culminating in becoming chairman and CEO of the bluest of blue chip firms, Goldman Sachs, and where does he go from here?
To get at these questions and push beyond well known sources, I interviewed a cross section of current and retired Goldman Sachs partners, including two members of Paulson’s executive committee, as well as a variety of leaders from the financial community more broadly. Let’s take each of the above questions in turn.
Who is Hank Paulson?
Now 62, Paulson was born in Palm Beach, Florida and grew up in a suburb of Chicago, Barrington Hills, Illinois. As a youth excelled in just about everything he did. He was an Eagle Scout, a star football player, and a talented student. He attended Dartmouth College, graduating with Phi Beta Kappa honors in 1968, where he reveled in protecting his quarterback and breaking holes for his running backs as an all-Ivy League offensive lineman. He was a direct admit to Harvard Business School, graduating in 1970.
As a person Paulson is direct and self-confident with a palpable inner strength. Some say this comes from his faith as a Christian Scientist, which prohibits him from smoking or drinking. He and his wife Wendy have two children, daughter Amanda, who is a journalist for the Christian Science Monitor, and a son, Merritt, who owns minor league baseball and hockey franchises in Portland, Oregon. Disciplined about keeping fit, Paulson has always been an adventurer, traveling the world, and developing a passion for and expertise in environmental work and endangered animal species.
His career has been a model of private sector accomplishment and public service leadership. After receiving his MBA, Paulson went to Washington to become staff assistant to the Assistant Secretary of Defense at The Pentagon. Two years later he moved to the White House, serving as assistant to John Ehrlichman from 1972 to 1973. He joined Goldman the following year in the firm's Chicago office and became a partner in 1982. He rose through the investment banking group, becoming co-head in 1990. At the end of 1994 Paulson became chief operating officer of the firm, and in June 1998 succeeded Jon Corzine (another famous Goldman alum now Governor of New Jersey) as chief executive.
When President Bush asked him to become Treasury Secretary, he is said to have balked; and for good reason. The two prior Treasury Secretaries, Paul O’Neill, former CEO of Alcoa and John Snow, former CEO of railroad giant CSX, were regarded as largely ineffective and what’s more, the President had only two and a half years left in what was an increasingly unpopular term. Paulson told the President that he would only agree to the job if he was guaranteed to have the authority to make an impact. Since his confirmation by the Senate in June 2006, he certainly has had his authority and he certainly has made and continues to make his mark.
What Motivates Him?
People who know Paulson stress that his motivation is pure, to help achieve stability in the financial system and the economy. He genuinely views his role as giving back to the nation and to the industry that has given him all of his advantages. He has a deep faith in markets but also in a role for government, especially when markets break down.
Paul certainly did benefit from the markets, which have afforded the financial opportunities from his career at Goldman Sachs. While he took a significant pay cut moving into Treasury, it was from an atmospheric level, swapping out more than $20 million in annual compensation for a governmental salary of $183,500. He also built an equity stake in the firm that grew to approximately $500 million which he had to sell prior to joining the Cabinet (like other federal appointees, he benefited from a capital gains tax exemption given to all who have to sell their holdings prior to taking office).
A $700 Billion Checkbook
Last Saturday, the Bush administration formally proposed a vast bailout of financial institutions in the United States, requesting unfettered authority for the Treasury Department to buy up to $700 billion in distressed mortgage-related assets from banks and other private firms. The proposal, which would raise the national debt ceiling to $11.3 trillion, is notable for its simplicity and the power it will bestow upon Paulson. It would grant the Treasury Secretary unprecedented authority to buy and resell mortgage debt with no restrictions other than requiring semiannual reports to Congress.
The bill seems certain to be approved swiftly by Congress, which is a testament to the credibility that Paulson has earned with his hands-on management of the current financial crisis. It should be noted that a key part of Paulson’s effectiveness and credibility is based on the seamless partnership that he has built over the past two years with Federal Reserve Chairman Ben Bernanke (during the current crisis they reportedly speak up to ten times a day). Together they forged the ambitious plan to buy $700 billion in troubled assets with taxpayer money.
To put the $700 billion in context, it is roughly equal to what the United States has spent so far in direct costs on the Iraq war and more than the Pentagon's total yearly budget appropriation. Another way to look at it, spread across the entire population, it would amount to more than $2,000 per person.
I asked a leading real estate investor, who oversees a market-outperforming multibillion dollar fund, to give me his assessment of Paulson’s performance. “I'm incredibly impressed with Hank Paulson's decisiveness, leadership and pragmatism,” he said. “I remain scared to death of what the ongoing de-leveraging and reversal of years of lax credit may still lead to, but I believe that history will applaud his interventions.”
Another senior Wall Street executive told me, “Paulson has been very hands on and taken the captain’s chair. He stepped up to the plate while the White House and Congress simply didn’t know what to do. It is not an overstatement to say that Paulson’s aggressive interventions, with Bernanke’s support, helped prevent a crash of the world financial markets. Like him or not, you have to respect him.”
How has Paulson’s Management Style Changed Since Goldman?
If you watch Paulson at press briefings or in Senate hearings, you get a sense of the man. Some of the adjectives that describe him best are direct, intense, powerful, serious, competitive, can-do, and frankly, ballsy. One of his former Goldman executive committee members said, “Hank hasn't changed at all since he was at Goldman. Literally.” Another current partner added, “He is exactly the same, very forceful and willing to take the lead and take a position. But he also uses a strong team around him to affect the game plan. I think he has done a tremendous job in the face of extreme pressure and be willing to make tough decisions. Thank goodness he is in the job.”
Where Does Paulson Go From Here?
Common sense would dictate that Senators Obama and McCain would plan to keep Paulson on as Treasury Secretary. He has said publicly that after he leaves his Treasury post, he would like to play a leading role in environmental work on a global basis. However, the aforementioned real estate investor, who like Paulson is a Dartmouth grad, has a somewhat different plan for the Secretary. “I’d like him to remain Treasury Secretary for the time being, but only until he accepts the role of Dartmouth's seventeenth president in 2009!”
He's the man who is getting $700 billion to bail out the nation's financial system. He personally drove the US government acquisition of insurance giant AIG and stepped in to engineer the nationalization of the formerly private mortgage behemoths Fannie Mae and Freddie Mac. He cajoled Jamie Dimon and Alan Schwartz to consummate the fire sale of Bear Stearns to JP Morgan Chase with a promise of $29 billion in financing from the Fed only to decide a few weeks later to allow the equally venerable Lehman Brothers to go into bankruptcy.
Move over Senators Obama and McCain and make way for the most powerful Treasury Secretary to come our way in modern times. He's Henry Merritt Paulson Jr., a.k.a. Hank. He leads a department that employs over 110,000 people and important institutions including the IRS, the U.S. Mint, and the FBI. But who is Hank Paulson? Where did he come from? What drives him? How has he changed since grudgingly agreeing to come to Washington in 2006 after a distinguished career culminating in becoming chairman and CEO of the bluest of blue chip firms, Goldman Sachs, and where does he go from here?
To get at these questions and push beyond well known sources, I interviewed a cross section of current and retired Goldman Sachs partners, including two members of Paulson’s executive committee, as well as a variety of leaders from the financial community more broadly. Let’s take each of the above questions in turn.
Who is Hank Paulson?
Now 62, Paulson was born in Palm Beach, Florida and grew up in a suburb of Chicago, Barrington Hills, Illinois. As a youth excelled in just about everything he did. He was an Eagle Scout, a star football player, and a talented student. He attended Dartmouth College, graduating with Phi Beta Kappa honors in 1968, where he reveled in protecting his quarterback and breaking holes for his running backs as an all-Ivy League offensive lineman. He was a direct admit to Harvard Business School, graduating in 1970.
As a person Paulson is direct and self-confident with a palpable inner strength. Some say this comes from his faith as a Christian Scientist, which prohibits him from smoking or drinking. He and his wife Wendy have two children, daughter Amanda, who is a journalist for the Christian Science Monitor, and a son, Merritt, who owns minor league baseball and hockey franchises in Portland, Oregon. Disciplined about keeping fit, Paulson has always been an adventurer, traveling the world, and developing a passion for and expertise in environmental work and endangered animal species.
His career has been a model of private sector accomplishment and public service leadership. After receiving his MBA, Paulson went to Washington to become staff assistant to the Assistant Secretary of Defense at The Pentagon. Two years later he moved to the White House, serving as assistant to John Ehrlichman from 1972 to 1973. He joined Goldman the following year in the firm's Chicago office and became a partner in 1982. He rose through the investment banking group, becoming co-head in 1990. At the end of 1994 Paulson became chief operating officer of the firm, and in June 1998 succeeded Jon Corzine (another famous Goldman alum now Governor of New Jersey) as chief executive.
When President Bush asked him to become Treasury Secretary, he is said to have balked; and for good reason. The two prior Treasury Secretaries, Paul O’Neill, former CEO of Alcoa and John Snow, former CEO of railroad giant CSX, were regarded as largely ineffective and what’s more, the President had only two and a half years left in what was an increasingly unpopular term. Paulson told the President that he would only agree to the job if he was guaranteed to have the authority to make an impact. Since his confirmation by the Senate in June 2006, he certainly has had his authority and he certainly has made and continues to make his mark.
What Motivates Him?
People who know Paulson stress that his motivation is pure, to help achieve stability in the financial system and the economy. He genuinely views his role as giving back to the nation and to the industry that has given him all of his advantages. He has a deep faith in markets but also in a role for government, especially when markets break down.
Paul certainly did benefit from the markets, which have afforded the financial opportunities from his career at Goldman Sachs. While he took a significant pay cut moving into Treasury, it was from an atmospheric level, swapping out more than $20 million in annual compensation for a governmental salary of $183,500. He also built an equity stake in the firm that grew to approximately $500 million which he had to sell prior to joining the Cabinet (like other federal appointees, he benefited from a capital gains tax exemption given to all who have to sell their holdings prior to taking office).
A $700 Billion Checkbook
Last Saturday, the Bush administration formally proposed a vast bailout of financial institutions in the United States, requesting unfettered authority for the Treasury Department to buy up to $700 billion in distressed mortgage-related assets from banks and other private firms. The proposal, which would raise the national debt ceiling to $11.3 trillion, is notable for its simplicity and the power it will bestow upon Paulson. It would grant the Treasury Secretary unprecedented authority to buy and resell mortgage debt with no restrictions other than requiring semiannual reports to Congress.
The bill seems certain to be approved swiftly by Congress, which is a testament to the credibility that Paulson has earned with his hands-on management of the current financial crisis. It should be noted that a key part of Paulson’s effectiveness and credibility is based on the seamless partnership that he has built over the past two years with Federal Reserve Chairman Ben Bernanke (during the current crisis they reportedly speak up to ten times a day). Together they forged the ambitious plan to buy $700 billion in troubled assets with taxpayer money.
To put the $700 billion in context, it is roughly equal to what the United States has spent so far in direct costs on the Iraq war and more than the Pentagon's total yearly budget appropriation. Another way to look at it, spread across the entire population, it would amount to more than $2,000 per person.
I asked a leading real estate investor, who oversees a market-outperforming multibillion dollar fund, to give me his assessment of Paulson’s performance. “I'm incredibly impressed with Hank Paulson's decisiveness, leadership and pragmatism,” he said. “I remain scared to death of what the ongoing de-leveraging and reversal of years of lax credit may still lead to, but I believe that history will applaud his interventions.”
Another senior Wall Street executive told me, “Paulson has been very hands on and taken the captain’s chair. He stepped up to the plate while the White House and Congress simply didn’t know what to do. It is not an overstatement to say that Paulson’s aggressive interventions, with Bernanke’s support, helped prevent a crash of the world financial markets. Like him or not, you have to respect him.”
How has Paulson’s Management Style Changed Since Goldman?
If you watch Paulson at press briefings or in Senate hearings, you get a sense of the man. Some of the adjectives that describe him best are direct, intense, powerful, serious, competitive, can-do, and frankly, ballsy. One of his former Goldman executive committee members said, “Hank hasn't changed at all since he was at Goldman. Literally.” Another current partner added, “He is exactly the same, very forceful and willing to take the lead and take a position. But he also uses a strong team around him to affect the game plan. I think he has done a tremendous job in the face of extreme pressure and be willing to make tough decisions. Thank goodness he is in the job.”
Where Does Paulson Go From Here?
Common sense would dictate that Senators Obama and McCain would plan to keep Paulson on as Treasury Secretary. He has said publicly that after he leaves his Treasury post, he would like to play a leading role in environmental work on a global basis. However, the aforementioned real estate investor, who like Paulson is a Dartmouth grad, has a somewhat different plan for the Secretary. “I’d like him to remain Treasury Secretary for the time being, but only until he accepts the role of Dartmouth's seventeenth president in 2009!”
Latest Technical Analysis on World Market Index
US
20th September: Two interesting signals last week. First, the NYA touched an important long term support at around 7,400. I wasn't expecting this so soon. But perhaps the sooner the better. See the ninth chart below. It shows a turn on a very good support. Best case scenario would be another fall to that support and a double bottom forming over the next few months. A similar bottom reversed the market in 2003. By contrast the Dow and the S&P500 don't show anything very interesting.
Singapore
20th September: The index has reached log target for our tops in the daily and weekly charts. But there is nothing to suggest that the bearish trend has reversed.
India
20th September: The index turned on support at 12,500. Let's see if it holds.
20th September: Two interesting signals last week. First, the NYA touched an important long term support at around 7,400. I wasn't expecting this so soon. But perhaps the sooner the better. See the ninth chart below. It shows a turn on a very good support. Best case scenario would be another fall to that support and a double bottom forming over the next few months. A similar bottom reversed the market in 2003. By contrast the Dow and the S&P500 don't show anything very interesting.
The other interesting thing is 3-day collection of new lows in the 1000 range. On three previous occasions the market has made short term reversals when new lows exceeded new highs by 1000 stocks. Previously we have seen the market rebound after a 1000-new low session. With luck, the recent three-day spike of new lows in the region of 1000 will precipitate more than a mere short term reversal.
In other news, the XOI chart, representing most of the oil majors, merely pulled back to a menacing top.
Hong Kong
20th September: The index plunged to support at around 16,000 before rebounding sharply. The weekly chart shows the index ending flat for the week. But many blue chips indicate that there is still a danger of further falls for the market. What does that mean for the market? (Sign up for my seminar and find out!)
Current prediction
Long term: Weekly chart head and shoulders top points to (log) 14,600; (arithmetic): 11,750 - not yet confirmed
Japan
20th September: The index has reached our log target. Support on the weekly chart at 12,200 is broken. The trend is still bearish.
Current prediction
Long term: double top (daily) points to 11,200 - done (log), 10,300 (arithmetic)
Malaysia
20th September: The index is testing good support at around 1,000. The top suggests that the support will break.
Current prediction
Medium term: 1. head and shoulders top daily chart points to 910 (log), 830 (arithmetic)
2. head and shoulders top weekly chart points to 930 (log), 860 (arithmetic)
Singapore
20th September: The index has reached log target for our tops in the daily and weekly charts. But there is nothing to suggest that the bearish trend has reversed.
India
20th September: The index turned on support at 12,500. Let's see if it holds. Current prediction:
Medium term: double top points to 10,500 (log); 8,800 (arithmetic)
23.9.08
The Neverending Story 4: Bail Out
The Year is 2025. It was only last year that Wal Mart and General Electric was bailed out by US Government. Today, Exxon Mobil, the last private firm in US is about to be bailed out.
This time around, US Government will borrow money from government of Afghanistan, the last country that willing to borrow money to US government. All other countries in the world has borrowed money to US government and all they got is some worthless recycled paper.
Today, Federal Reserve Chairman, Phillip J. Fry of the Futurama Series, announce that all US citizen will willing to work as farmer for other countries to repay their country's debt, standing at amazing 35,000 trillion.
Also, a humanity group in Mexico City willing to give free loaf of bread to American as a sign of sympathy. It is heavily criticized by other Mexican that claimed America government has discriminated them for over a century.
Inside a small hut, a regular American child ask his father a question: i read in the history book and it said US used to be the richest country. What happened?
Father: "Well, it all began at March of 2008 when the US government agreed to bail out Bear Stearns. After that, Indymac, Fannie mae, Freddie mac, AIG. After that Henry Paulson and Ben Bernanke came out with a 700 billion bail out plan......"
Child: "Daddy, why American agree to the plan?"
Father: "Well we didn't but the politician agreed so the plan was launched and here we are."
Child: " Stupid politician."
This time around, US Government will borrow money from government of Afghanistan, the last country that willing to borrow money to US government. All other countries in the world has borrowed money to US government and all they got is some worthless recycled paper.
Today, Federal Reserve Chairman, Phillip J. Fry of the Futurama Series, announce that all US citizen will willing to work as farmer for other countries to repay their country's debt, standing at amazing 35,000 trillion.
Also, a humanity group in Mexico City willing to give free loaf of bread to American as a sign of sympathy. It is heavily criticized by other Mexican that claimed America government has discriminated them for over a century.
Inside a small hut, a regular American child ask his father a question: i read in the history book and it said US used to be the richest country. What happened?
Father: "Well, it all began at March of 2008 when the US government agreed to bail out Bear Stearns. After that, Indymac, Fannie mae, Freddie mac, AIG. After that Henry Paulson and Ben Bernanke came out with a 700 billion bail out plan......"
Child: "Daddy, why American agree to the plan?"
Father: "Well we didn't but the politician agreed so the plan was launched and here we are."
Child: " Stupid politician."
Oil Is Expensive Again
After Treasury Department's 1.1 trillion dollar pump into the economy, everybody knows what gonna happen: inflation rate gonna be shoot the moon. So investor seek opportunity to sell dollar for other currency. Dollar slipped to as low as 1.4807 at 3.00pm ET.
As a result, crude oil rally. Light, sweet crude for October delivery jumped as much as $25.45 (24.2%) to $130 a barrel on the New York Mercantile Exchange before falling back to settle at $120.92, up $16.37. This is the biggest rally that crude oil ever have.
If you think crude oil will stop from rallying, then you are wrong. This is just the tip of an ice field. Not only crude oil rallies but most major commodities rally too. Gold future up 40 dollar or 4.73% to 905 per ounce, Soy oil up 2.63 or 5.55% to 50.03, corn up 16.25 or 3% to 558.50.
Dollar fell against every major currency in the world. Dollar index fell 1.54 or 1.98% to 76.4. Dollar fell between 1.35% to 2.5% against major currency in the world which include Swiss Franc, Euro, Aussie Dollar, Pound, Yen and others.
I can guarantee you if government continue to act like this, commodity will boom like crazy and dollar will fell like it is worthless but there are no evidence government will stop their silly move!
So protect your wealth and earn profit from this situation. Sell US dollar against any major currency in the world and long any important commodity such as gold, silver, crude oil, soy oil and soy bean.
For those who already make money from that, Thank you to US government because at least they will make something rise!
As a result, crude oil rally. Light, sweet crude for October delivery jumped as much as $25.45 (24.2%) to $130 a barrel on the New York Mercantile Exchange before falling back to settle at $120.92, up $16.37. This is the biggest rally that crude oil ever have.
If you think crude oil will stop from rallying, then you are wrong. This is just the tip of an ice field. Not only crude oil rallies but most major commodities rally too. Gold future up 40 dollar or 4.73% to 905 per ounce, Soy oil up 2.63 or 5.55% to 50.03, corn up 16.25 or 3% to 558.50.
Dollar fell against every major currency in the world. Dollar index fell 1.54 or 1.98% to 76.4. Dollar fell between 1.35% to 2.5% against major currency in the world which include Swiss Franc, Euro, Aussie Dollar, Pound, Yen and others.
I can guarantee you if government continue to act like this, commodity will boom like crazy and dollar will fell like it is worthless but there are no evidence government will stop their silly move!
So protect your wealth and earn profit from this situation. Sell US dollar against any major currency in the world and long any important commodity such as gold, silver, crude oil, soy oil and soy bean.
For those who already make money from that, Thank you to US government because at least they will make something rise!
Bailout Plan Expected to Be A Drag On US Economy
If you’ve been worried about the health of the economy and you also have doubts about the soundness of the Treasury’s Wall Street rescue plan, then be afraid, be very afraid—because the US economy may get a taste of what Japan’s suffered over a decade-long period.
“The Wall Street mess will now have collateral damage to the real economy,” says Steve Hanke, a former White House economist. “We're coming into this thing in a terrible situation.”
Hanke and other economists see some similarities with Japan’s decade-long economic malaise – combination of real estate asset bubble, banking crisis and misguided and expensive government intervention.
“A lot of the symptoms of the pain and adjustments will be exactly the same, “ says Hanke, now with the Cato Institute and Johns Hopkins University. “We've got some major adjustments coming in the economy, some major slowdowns.”
Depending on who you ask, that means anywhere between two to five years of no growth or slow growth, while the government rescue plan plays out along, the housing and real estate sectors stagger to recovery and the American consumer restores his own shaken balance sheet.
Opponents of the $700 billion plan see no payoff for the real economy. “This plan is not about housing, not unless you’re talking about investment houses.” Says FAO Economics Chief Economist Robert Brusca. “This is not a plan aimed at reviving the economy. This is all about trickle down.”
Even those who view the plan as necessary but insufficient see hard times ahead..
“The consumer needs repair, job layoffs are increasing, real wages are not increasing,” says money manager James Awad, managing director at Zephyr Management. “In the corporate sector, everybody’s in a protect-your-balance–sheet-mode. Most corporate executives are going to think cash is king. Overseas economies are slowing, which means exports are going to be a bit slower. So, that leaves the government and the government is constrained by huge deficits.”
Are we there yet? Sorry, but no.
“This is the beginning of the adjustment and the Fed and Treasury intervention slowing that down,” says economist Ram Bhagavatula, managing director at the hedge fund Combinatorics Capital. “Its not like this economy is ready to go if credit is cheap and flexible.”
“I think it is horrendous,” says former FDIC Chairman William Isaac. “There are less expensive way to stabilize depositors if people are nervous.”
Isaac notes that there were some 3000 bank and savings and loan failures between 1980-1991; depositors didn't panic “because they had confidence in the government,” says Isaac, now chairman of the Secura Group of LECG.
Japan Vs. US Cases
Most economists say the Japanese government made the mistake of extending the country’s financial problems by one form of intervention or the other – corporate aid packages, repeated stimulus packages with one-off tax rebates that consumers didn’t spend and a ever lower interest rates. The stock market sank and then languished for years.
In the US, the economy is suffering from both conventional and extraordinary forces. There’s the unwinding of the leverage bubble triggered by the historically low rates of the Allan Greenspan and near simultaneous defense spending explosion of the Afghanistan and Iraq conflicts as well as the cyclical downturn, which is gaining momentum and generating higher unemployment and layoffs.
Earlier this month, the Congressional Budget Office’s issued its baseline ten-year budget projections -- which assume no policy changes over the period – and forecast that debt held by the public would explode from $5.4 trillion in calendar year 2008 to $7.9 trillion in 2018.
Add to that, the government’s series of credit crunch crisis moves culminating in the Treasury plan and you have another $1.8 trillion at the minimum.
Hanke, who adamantly opposes the Treasury’s bailout plan, says the lessons of the Iraq-Afghanistan wars certainly apply and that uncertainly about the plan, as well as setbacks and/or outright failure.
“There will be lots of uncertainty to it,” he says. “Just think of the sentiment about the war on terrorism and how that deteriorated over time with bad performance. The same thing happens in the financial sector. There’s a huge overhang on the consumer side.”
That’s especially problematic at a time when consumer spending is slowing – along with tax receipts from most corners of the economy -- and the economy is expected to begin contracting as soon as the fourth quarter.
There’s also little chance of austerity with a new administration. Sticker shock about the bailout aside, the two contenders remain wedded to their economic proposals, none of which are likely to provide budget relief.
Hanke says “substantial increases in spending, put the economy on an unsustainable path.”
Sources: CNBC
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