The market took yet another beating today, the Dow Jones industrial average plunged 678.91%. This after the bailout that now looks like it will be closer to a trillion dollars than the $700 billion expected, our bail $100 billion for AIG, and after the fed cut rates.
Todays drop is the most recent in 3 figure drops, and has now brought the market down 40% from it’s all time high.
What’s the plan?
It seems that Treasury Secretary Paulson’s new plan is to watch what Warren Buffet does, and then have us do that. Paulson is considering a massive cash injection into the banks, following in the lead of Warren Buffet’s investment into Goldman Sachs. How following Warren Buffet in finance can be argued to be a savvy move, Mr. Buffet has the money to lose on his gamble, and only has a decade or so left on this planet. I’m not sure that this is the best move for the entire country.
I have to be honest, and I don’t think I’m alone here, I don’t think Paulson is up for this task. He has been dead wrong at every turn, he doesn’t seem to want any accountability, and every time I see him speak, he looks like he’s ready to run away crying.
The last time we injected capitol into the banking system was in the late 80’s during the savings and loan scandal. I’m sure John McCain remembers us having to bail out his close friend Charles Keating. McCain keeps urging us to check his record, so I like to keep mentioning that.
Where’s the leadership?
Dana Perino confirmed that our fearless leader will be addressing the country to tell us how everything is fine.
Perino says Bush will,”assure the American people that they should be confident that economic officials are aggressively taking every action to stabilize our financial system.”
I don’t know how much better anyone feels knowing that W.’s on the case. But John McCain did say that Bush could solve this whole thing with a stroke of his pen! Maybe McCain should try to wrestle away the president’s magic pen and save us all. Idiot.
Bush also announced today that he has established a presidential transition team to help the new administration (President Obama and Vice President Bidden) assume responsibility in January. So, the proverbial buck will stop with Obama/Bidden I guess.
In all seriousness, this is getting very bad. This drop has some simple explanations, panic selling, hedge funds pulling money to handle redemption orders, or maybe it’s that the Chevy Volt looks nothing like we thought it would. But those don’t cover the significant increasing losses.
GM is down to the lowest it’s been since 1950, how is that possible? Apple could announce that the just patented teleportation and their stock would go down, and even gold is in the tank today. There are few answers for this, and even fewer solutions.
The underlining problem is credit. The Fed’s new Commercial Paper Funding Facility has failed to boost confidence. Companies need this Commercial paper, which is really nothing more than an IOU that allows companies to cover payroll and other daily expenses.
This is what is killing us right now. The big hits in General Motors and other major corporations is very simply a lack of available credit. So yes, an injection of capitol will help band-aid the problem, but we also need to look at the fact that these companies are living off of credit to this extent. Our biggest corporations in the world are living, much like most American people, from check to check, month to month. They are living off of credit, we all are.
The band-aid will not hold for long. We cannot keep injecting money that we don’t have, into credit to companies that cannot function without it. It’s time to start looking at drastic alternatives. My best opinion would be FairTax. Let these companies not pay taxes. If you understand the way the system works, this makes a lot of sense.
You can check out my post on FairTax here.
I’m starting to feel that FairTax isn’t so much a good idea as it is the only viable solution for what may very well be the beginning of the end of American economic dominance. And I like being a top.
The combination of ridding ourselves of oil (not just foreign, but all fossil fuel) dependency, getting universal health care, and moving to a FairTax system could put this country on a track that is a complete 180 from what we have right now.