Slapstick Economics

By Steven Ferguson - Econometrics and Programmatic Trade

(Article interests: AMEX: DIA, AMEX: SPY, Nasdaq: QQQQ, NYSE: NYX, AMEX: DOG, AMEX: SDS, AMEX: QLD, AMEX: XLF, AMEX: IWM, AMEX: TWM, AMEX: IWD, AMEX: SDK)

How many times will Ben, Hank and now Christopher Cox confound us with their slapstick solutions for ongoing market turmoil? Bear Stearns (NYSE: JPM) wasn't enough? Freddie? Fannie? AIG (NYSE: AIG)? And now the grand finale, the bailout to end all bailouts? And since it won't, what will they do for an encore?

Somehow we should trust Henry Paulson with this effort? The same Hank Paulson who told us that housing bottomed long ago and that sub-prime mortgages constituted a small problem that was largely contained? The same Paulson who proposes no oversight and unlimited pay for the greed-ridden geniuses who got us into this mess? Maybe he thinks he still works for Goldman Sachs (NYSE: GS)? Maybe he has already forgotten the need for regulation?

Or maybe we should trust Helicopter Ben? Ben Bernanke? The mad scientist run amok who is encouraging tax-payers to offer "hold-to-maturity" prices for distressed debt when we might actually benefit from the "fire-sale?" If these assets are truly worth the price of holding to maturity, shouldn't the banks simply "hold to maturity?" (mental note: hire Ben Bernanke to sell my home with that sales pitch!) Ben, the same manic maniac who one day warns of runaway inflation and the next day holds the gun of deflation to our collective head?

Or perhaps Chairman Cox can save the day? Banning short sales sure seems to have helped Ambac Financial (NYSE: ABK) and Farmer Mac (NYSE: AGM) fritter away half of their market capital in the last four days. Chris, have you noticed that short covering can no longer fuel the mega-rallies which have characterized this volatile market over the last many months? Any more brilliant ideas?

With the answers to all of these questions so seemingly obvious, it should come as no surprise that the American Public is overwhelmingly and vocally opposed to the "Bush Blockbuster Bailout" (that's not even Bbb- debt) proposal. And though some of us must ruefully admit that Democratic Congressmen have authored more common sense provisions than their Republican counterparts, none of the options seem the least bit palatable.

No, it is time to put an end to the "trickle-down economics" playbook. While this worked what seems a lifetime ago, when Presidents were presidential, when Fed Chairmen had a modicum of common sense, when America was still an Empire with a real live manufacturing economy, and when bankers were actually about the business of propagating wealth formation, it no longer works today. It does not work for many reasons, all of them summed up in a word: Greed. And it certainly won't work in the hands of the stooges who have failed thrice before.

See Part II to this piece: "An Ancient Bailout Proposal"...

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