The Wall Street Journal says that the original $700 billion bailout will not be enough (surprise, surprise), which makes it likely that Treasury Secretary Hank Paulson will be forced to go back before Congress and ask for still more money. Just amazing. Congress has a chance to do the right thing and stop this before we send the economy into another Depression. Do any of us think that they have the courage to do this? Outside of Ron Paul and a few others, it’s doubtful, but maybe we’ll see them actually listen to their constituents this time. But hey, who am I kidding?
I recently had a great talk with Wayne Allyn Root, the VP nominee for the Libertarian Party, who, along with presidential nominee Bob Barr, received the second highest vote total in history for their party, which is truly impressive as they were essentially shut out of the process. Why they were not invited into the debates, I have no clue (well, that’s not quite true), but my guess is that in four years, when Mr. Root is hopefully at the head of the Libertarian Party, things will be quite a bit different. Many of you reading this will hear Wayne speak at the upcoming WMI Wealth Conference (Nov 21-24) in Marco Island, FL. According to Wayne, things will only get worse as we abandon our capitalist system and embrace socialism, as evidenced by the ongoing nationalization of our banking system and coming auto industry bailout/takeover. Get ready folks…Wayne is going to rock the house!
I just read a spirited piece from Kevin Depew of Minyanville.com. He writes:
So what happens if Congress stops the bailout, even going so far as to refuse to authorize the second half of the original $350 billion? We will probably see a huge drop in financial markets. Stocks will likely plunge 30% or so from present levels. There will be bankruptcies and layoffs. Times will be tough. Very tough. What if Congress approves still more bailout money? That money will be quickly absorbed by a financial system staggering under the weight of unprecedented levels of debt. We will see a continued decline in the velocity of money and business activity. Stocks may slowly fall 30% or so from present levels. There will be bankruptcies and layoffs. Times will be tough. Very tough. So, where’s the difference? The difference is that without more bailouts, within a decade - give or take a few years - we will emerge as a healthier, stronger economy with companies that operate as if they are deeply responsible for their own business decisions. With continued bailouts we will emerge from a lost decade with an economy and society crippled by the cost of bailing out businesses that operated with irresponsibility and a near total disregard for not just taxpayers but for their very own shareholders. This is it. The last chance to do the right thing.But you and I already know how this story ends. The right thing will not be done. There will be more bailouts. And then more bailouts. Meanwhile, even as we continue writing checks to failed businesses, once-healthy businesses are facing doom, victimized by zombie companies absorbing dollars that, if freely spent, would be rightly theirs.
For those that may not know, Hank Paulson made all of his hundreds of millions while running Goldman Sachs (GS). That was his job before being anointed as Treasury Secretary; the next brain from Goldman that would save us all. What people should know - what everyone should know - is that Goldman was one of the major players in the creation of most of the derivatives being blamed for our debt implosion and severe recession, namely credit default swaps.
On October 16th, the American News Project published a report on the economic crisis and subprime lending schemes. The report mentioned that many foreclosures were being pursued by Litton Loan Servicing, a company owned by Goldman Sachs. That’s right… Paulson’s Goldman Sachs. Litton is a leader in the field known as subprime servicing, which specializes in the handling of subprime mortgages where the homeowner has fallen behind in payments and is at risk of foreclosure. In other words, they are a type of collection agency for people that are about to be kicked out of their homes. Litton has frequently been accused of engaging in abusive practices, including more than 100 lawsuits in federal court since the beginning of 2004!
In December 2007, Goldman Sachs bought the company for $428 million, plus repayment of $916 million of outstanding Litton debt. Goldman, which probably didn’t want the world to know of its buyout, never issued even a basic press release. Is Hank Paulson’s delay in really helping struggling homeowners an effort to help Goldman’s Litton operation?
The bigger question is; why aren’t we being told about this relationship and why isn’t there an investigation into this, along with Goldman’s role in the very derivatives that spawned this crisis in the first place?
A couple of weeks ago I wrote that until we had a “Perp Walk”, with these criminals in handcuffs, that there was little chance of confidence being restored. Now that its been reported that Warren Buffett lost $9 billion in the last quarter due to bad derivatives bets on the stock market, along with his poorly timed $5 billion investments into Goldman and GE (GE), maybe he will lead the way in the upcoming criminal investigations, assuming they ever take place. He’s certainly motivated to do so.
Speaking of Buffett, I wonder if he will be writing another “Buy America” piece for the New York Times anytime soon?
Folks, we are going lower; much, much lower. I see little chance that the lows of 7800 on the Dow hold up. SDS is still the play, but keep in mind that it’s very volatile and only for shorter term investors willing to take the risk of a bear market rally. While I doubt that we will have one soon, you never know what the government will do to prop the markets up.
Finally, gold is being hit again, and headed back to $700/ounce and maybe lower. Deflation fears and needed liquidity are the reasons, along with a strong US dollar. Classic flight to safety move. Once the printing presses really get cooking, this will change and the next big move higher in precious metals will begin. It may be this month or next, or possibly even next year, but I see no way that gold doesn’t break $1000 on its way to much, much higher prices. The BIG move will come in the miners, specifically the ones that are down as much as 60-80%. It takes courage to buy them now, but I believe the timing is about as good as it will get.
Disclosure: Author holds a long position in SDS