wOw's Wall Street Weekly with Liz Peek
What can the Paulson team actually do? Here's my take: Investors and voters have little confidence in the once-$700-billion-now-$900-billion rescue plan. There are a number of reasons for that -- it is complex, the original presentation was vilified as a bailout for Wall Street and the final package was so bloated it made the Fat Cats look anorexic. The plan also failed to buoy confidence because it wasn't immediate -- the best guess was that it would not be implemented until mid- or late-November.
What's that all about? Here we have the fiscal dream team telling us to hurry, hurry, hurry to get this bill enacted -- and then they can't figure out how to buy some securities? Is this an emergency or isn't it?
Why can't Paulson haul in the nation's top ten bankers (whoever they are these days -- hopefully Paulson is keeping track of who's in and who's out) and say, "OK -- each of you is walking out of this room with $15 billion in your pocket, and I will have relieved your balance sheets of some seriously corroded assets that have been keeping you up at night -- but in return, you need to open the spigots and put this money out there. Not next week, not next month -- but Monday."
That used to be called jawboning, and in prior days government officials engaged in such when the nation was at risk. And, bankers and corporate titans used to respond appropriately.
This is truly what is needed. It is more likely that the government will now step in and invest directly in the banks, taking an equity position in return for funds. So, we will have effectively nationalized the banking system. I think that's a repugnant idea, since I have even less confidence in bureaucrats running institutions than I do in this generation of financial potentates. Still, something must be done. I have heard that GE, finally recognized as the financial services company it has long been, is paring back its lending activities drastically and that Madison Dearborn, a private-equity lender to the middle market, has sent its people home on furlough until after the turn of the year. These are just data points -- the shutdown of lending is universal. This is real, folks; businesses can't get financing for deals, for inventories, for expansion, for anything.
For most of us, it's too late to sell. I do believe this, but you have to reach your own conclusions. The SEC allowed short sellers to ramp up again yesterday, for what reason I really do not know since we are clearly still in a fragile state, and the trampling of companies like Morgan Stanley may well escalate the panic selling, as happened yesterday. There will come a point -- soon -- where I will be tempted to buy some index futures, just as a bet against the herd.
Meanwhile, if anyone cares, there was actually some good news, ironically, on the housing front this week. Mortgage applications were up last week by 2.2% and pending home sales rose by more than 7% in August. That jump was the most since October 2001, and bucked expectations of an expected 1.3% drop. There is every indication that lower prices and lower rates are beginning to have some impact. These trends won't resolve the housing crisis overnight, but just as the sharp spike-up in oil prices last year eventually dampened demand, inventories of unsold homes will ultimately decline over the next year, allowing the industry to right itself.
On the oil front, I am now not so optimistic. While it is refreshing to see oil prices tumble from their highs of $147 a barrel to $87, offering some relief to Americans battered by falling home and stock prices, the drop may prove temporary. OPEC has agreed to convene an emergency session on November 18 in an attempt to stem the decline. Some members are calling for an output cut, which would come at a terrible time. At the same time, recent demand and supply figures point to a likely backing up in prices, with non-OPEC supplies falling short of expectations. Saudi Arabia is typically the moderate voice at these gatherings, but whether they can prevail remains to be seen.
For sure, we are in a recession, and the gloom is now widespread. We need our leadership to restore confidence in the markets, and in the country. Instead, we have our candidates bickering and attacking each other with "he said - she said" nonsense. That doesn't help.
- The Economic Crisis Reader Forum
- Humorist Liza Donnelly's Financial Crash Cartoons
- What Would FDR Tell Us Today? 6 Roosevelt Quotes for Today's Economic Panic
[photo credit: Henry Paulson © USTreas.gov]
