The Political Bear

I am against the bailout, and part of being against the bailout is being ready for losses, so here are some numbers to help put current market losses into an historical perspective.

Wall Street Crash of 1929

On Black Tuesday, the Dow Jones Industrial Average fell 38 points to 260, a drop of 12.8%. The deluge of selling overwhelmed the ticker tape system that normally gave investors the current prices of their shares. Telephone lines and telegraphs were clogged and were unable to cope. This information vacuum only led to more fear and panic. The technology of the New Era, much celebrated by investors previously, now served to deepen their suffering.

Black Tuesday was a day of chaos. Forced to liquidate their stocks because of margin calls, overextended investors flooded the exchange with sell orders. The glamour stocks of the age saw their values plummet. Across the two days, the Dow Jones Industrial Average fell 23%.

By the end of the week of November 11, the index stood at 228, a cumulative drop of 40 percent from the September high. The markets rallied in succeeding months but it would be a false recovery that led unsuspecting investors into the worst economic crisis of modern times.

The Crash of 1987

The mid-1980s were a time of strong economic optimism. From August 1982 to its peak in August 1987, the Dow Jones Industrial Average (DJIA) grew from 776 to 2722. The rise in market indices for the 19 largest markets in the world averaged 296 percent during this period. The average number of shares traded on the NYSE had risen from 65 million shares to 181 million shares.[1]

The crash on October 19, 1987, a date that is also known as Black Monday, was the climactic culmination of a market decline that had begun five days before on October 14th. The DJIA fell 3.81 percent on October 14, followed by another 4.60 percent drop on Friday October 16th. But this was nothing compared to what lay ahead when markets opened on the subsequent Monday. On Black Monday, the Dow Jones Industrials Average plummeted 508 points, losing 22.6% of its value in one day. The S&P 500 dropped 20.4%, falling from 282.7 to 225.06. The NASDAQ Composite lost only 11.3% not because of restraint on the part of sellers but because the NASDAQ market system failed.

And here is a link for a list of all the stock market crashes: List

The House is in currently rejecting the bailout!!! This is the great!!!

I got this up as fast as I could, now maybe I can fill in a bit. The bailout is a bad idea. It causes the socialization of risk, which is a recipe for disaster in free, or freeish market society. The socialization of risk actually provides an incentive to businesses to increase the amount of risk that they take.

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Below are some of the Republican plans for the bailout. Better, but I am still waiting on something (that is actually nothing).  Preservation of the basic assumptions of market forces will pay off more in the long run then a short term bailout now. Anyways, I would like to hear any thoughts about any of the individual proposals/ideas.

PROTECTING TAXPAYERS:

CHANGES AND ALTERNATIVES TO THE TREASURY BAILOUT

Secured Loans: The Treasury proposal essentially infuses capital onto the books of financial institutions. Instead of purchasing assets at inflated prices, a secured loan at a punitive interest rate would provide needed capital and give firms time to restructure, while still holding shareholders and debtholders accountable.

“Pay to Play”: Require Treasury to determine an up-front fee for firms to offload their assets, perhaps $0.10 (or more) for every $100 of the post-auction purchase price. The proposal would ensure that firms pay some portion of the financial exposure borne by taxpayers and provide a disincentive for firms that are more inconvenienced than jeopardized by their current portfolios.

Increased Transparency: Require participating firms to disclose to Treasury the value of their mortgage assets on their books and the value of any private bids within the last year for such assets. This information should be made publicly available, as well as the specific assets purchased, their purchase price, and the identity of the sellers.

Empower Private Investors I: Require that the auction process envisioned by Treasury include private investors. Some continue to overlook the willing buyers currently ready to purchase these mortgage-related assets. The problem is that the bailout firms are not willing to sell at such low prices, and taxpayers should not have to pay inflated prices as a result.

Empower Private Investors II: An alternative proposal would allow financial institutions (in 2008 or 2009) the option of a one-time, five-year carryback deduction on net operating losses. Firms could only take advantage of it by selling off undesired assets at the market rate. Such targeted tax relief for the financial services sector would provide an immediate infusion of liquidity and capital without handing a blank check to Treasury.

Limit Federal Backing for High Risk Loans: Mandate that the GSEs no longer securitize any unsound mortgage that is: (1) not fully documented to meet minimum requirements for work, assets, and income, (2) not backed by private mortgage insurance for no less than half the value of the loan, (3) written to comply with the Community Reinvestment Act and otherwise would violate a firm’s lending rules.

Corporate Accountability: Require that any firm selling its assets to Treasury replace its senior management immediately and freeze all executive bonuses and golden parachutes. In addition, all employees and board members of participating firms must forfeit their stock options before entering into negotiations or an auction with Treasury.

Limit Financial Firm Eligibility: Require the Treasury Department, in conjunction with the Federal Reserve, to publish a list of financial firms who pose a legitimate systemic risk to the entire economy, those truly “too big to fail,” and limit the purchasing program to those firms.

Independent Entity with an Independent Director: Set up an independent government-corporation to buy these assets, instead of Treasury, run by a Senate-confirmed administrator who can be held accountable by Congress. In addition, the administrator would have a fiduciary duty to minimize taxpayer exposure.

Criteria for Assets: Set some criteria for the quality and type of assets that are allowed to be purchased to guard against mission and asset creep.

Lower the Cap, Subject to Appropriations, and Offset: Lower the purchase authority to $350 billion in order to limit the amount of bad assets purchased or force the Secretary to return to Congress for additional authority. In addition, all funding needs to be subject to appropriations and offset, either through spending restraint or permanent authority to drill in the OCS and ANWR.

Ban Wall Street Cronyism: Mandate that no financial firm can both participate in the purchasing program and act as an agent of the government in order to limit potential conflicts of interests.

Joe Biden claims that taxes are patriotic! What? Joining the military, that is patriotic. Paying taxes, should never be viewed as anything but a burden. However, preach on Democrats………claiming that voters are whiny because they don’t want to pay higher taxes in an uncertain economy is not the plan of attack that I would suggest.

“Democratic vice presidential candidate Joe Biden said Thursday that paying more in taxes is the patriotic thing to do for wealthier Americans. The Republican campaign for president calls the tax increases their Democratic opponents propose “painful” instead of patriotic.”

Being at the Republican National Convention is hard work, especially when you are the mascot. However, even mascots get to take breaks sometimes-

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Back at work:

Like Cranky, I am not a fan of Convention speeches. However, I am a fan of Fred Thompson. He will make a great no-nonsense bulldog to go after Barack and the Left.

Here is what they wrote about the speech in The Weekly Standard:

Thompson Speech Hits Media on Palin, Obama on Abortion

Fred Thompson will forcefully defend the selection of Sarah Palin tonight in a speech Republicans are characterizing as “red meat.” He will argue that the feeding frenzy over Palin’s is the result of “panic” from the Democrat-friendly mainstream media.

“What a breath of fresh air Governor Sarah Palin is. She is from a small town, with small town values, but that’s not good enough for those folks who are attacking her and her family. Let’s be clear, the selection of Governor Palin has the other side and their friends in the media in a state of panic. She is a courageous, successful, reformer, who is not afraid to take on the establishment.”

Thompson will also criticize Barack Obama’s answer on abortion from his recent appearance at Rick Warren’s Saddleback Church. Warren had asked: Now, let’s deal with abortion. 40 million abortions since Roe v. Wade. you know, as a pastor I have to deal with this all of the time. All of the pain and all of the conflicts. I know this is a very complex issue. 40 million abortions. At what point does a baby get human rights in your view?”

Obamas responded: “Well, I think that whether you are looking at it from a theological perspective or a scientific perspective, answering that question with specificity, you know, is above my pay grade.”

Thompson criticize Obama for dodging the issue: “We need a President, and Vice President, who will take the federal bureaucracy by the scruff of the neck and give it a good shaking. And we need a President who doesn’t think that the protection of the unborn or a newly born baby is above his pay grade.”

The bulk of Thompson’s speech will be a testimonial on behalf of John McCain, his character and his leadership. John McCain has “the kind of character that civilizations from the beginning of history have sought in their leaders.”