Thursday, September 18, 2008

A Wild Day in Washington (and elsewhere)

The housing crisis hit the broader market about a week ago, with the loss of Lehman Brothers (and just before the Ryder Cup, Tom) and bailout/special loan arrangements/ nationalization for Fannie Mae, Freddie Mac and AIG. Today the accusations and commentary reached "silly season" levels as Fed chair Bernanke and Treasury secretary Paulson considered automaker propups and purchase of junk securities related to home mortgages. Happily for Charles Rangel, an additional scandal related to parking effectively was buried by other events of the day.

The big headlines of the day and associated commentary (guaranteed to be worth at least what you paid for it):

1. The Fed and other central banks throw nearly $200 billion into global capital markets - Milton Friedman would deservedly be proud of Bernanke today; the liquidity infusion was absolutely correct in a market dominated by fear.

2. Joe Biden called on high-income taxpayers to show their "patriotism" by paying higher taxes - Apparently Senator Biden has forgotten that Supreme Court Justice Learned Hand said many years ago that there was no duty to pay more than the amount legally required. Additionally, Senator Biden may wish to contribute more of his personal income to charity before calling on taxpayers to chip in more to the Treasury; a report today indicated that recent tax returns show less than $500 in donations last year.

3. John Mc Cain called for the firing of SEC Chairman Christopher Cox - I should note that Bill O'Reilly has also sharply criticized the SEC chair for not providing investors with sufficient warning in regard to the present crisis. I actually believe that Cox has done a good job on the accounting side (XBRL, added disclosure, etc.) but he has not been part of the Bernanke/Paulson action axis, leading one to wonder if Cox has been the Michael Brown/Kathleen Blanco of this crisis. Not ready to join McCain yet, but Cox may have some explaining to do.

4. George Bush cancels fund raisers to stay as the crisis unfolds - For once, the president's instincts were on point here--unfortunately for him, not only Democrats but increasingly McCain/Palin treat Bush as irrelevant.

5. Bernanke/Paulson meet with Congress tonight--a RUMOR about a Paulson mention of a mortgage securities bailout was enough to spark a late stock rally. Hopefully, we will know more tomorrow.

At this point, I would prefer to loan the automakers $25B for retooling and retraining laid-off workers compared to another financial bailout. Nevertheless, I'm sure that my opinion carries less value in Washington than a Countrywide derivative.


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12:19 AM  

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