by John M. Curtis
(310) 204-8700

Copyright September 30, 2008
All Rights Reserved.

           Falling off her high-wire act, House Speaker Nancy Pelosi (D-San Francisco) rubbed too much salt in GOP wounds, causing the backlash that resulted in the bailout bill going down to defeat [228-205] Sept. 29.  Wall Street promptly returned the favor, dropping the Dow Jones Industrial Average a whopping 775 points.  Proving that Wall Street has a mind of its own, the market rocketed back Sept. 30 485 points, proving, if nothing else, that markets don’t need a bailout plan to buy-or-sell.  Expectations that a second bailout was underway helped jolt fund-managers to start buying again.  President George W. Bush, Federal Reserve Board Chairman Ben S. Bernanke and Treasury Secretary Hank Paulson all warned of economic disaster should the bailout die in the House.  Recent market gyrations show that Wall Street has its ways of forcing Washington’s hand.

            Bailout advocates warn of an economic nightmare should the House fail to pass urgent legislation.  Monday’s massive sell-off says more about how Wall Street operates than the state of the economy.  Most economists differ on whether a failure to pass bailout legislation would result in the doom-and-gloom expressed by Bush, Bernanke and Paulson.  “I recognized this is a difficult vote for members of Congress,” said Bush, urging Congress to pass the legislation.  “But the reality is we are in an urgent situation and the consequences will grow worse each day if we not act,” continuing the coercion to force the House’s hand.  Both Republicans and Democrats don’t trust handing over $700 billion to the White House to arbitrarily decide where the money goes.  Billions of missing dollars in Iraq shows that the White House doesn’t take protecting taxpayer dollars too seriously.

            Driving the market up 485 points proves beyond any doubt that Wall Street is manipulated by programmed trading, not individual investors.  Bernanke announced that the Fed was adding more that $600 billion to banking reserves to improve corporate liquidity.  Congress knows opposition to a taxpayer-stuck bailout is running two-to-one, yet Bush continues his unrelenting pressure.  If the bailout outright failed, Wall Street would continue selling-off, eventually hitting a new bottom.  After Sept. 11, it took a year-and-a-half befire the Dow dropped from 11,750 to 7,770, sometime early 2003.  From its low, it took four years for the market to peak July 17, 2007 at 14,000.  If the bailout passes, it’s possible that it would delay the inevitable bottom, pushing the next  bull market into the indefinite future.  Wall Street figures out when the market drops too much, causing a buying opportunity.

            Wall Street’s major funds don’t like safe-havens like treasury bills.  They prefer buying low and selling high, the endless game played by the major funds all setup on programmed trading.  I’m told a number of people who voted ‘no’ yesterday are having serious second thoughts about it,” said Senate Banking Chairman Christopher Dodd (D-Conn.), after the market took its Monday nosedive.  What Dodd doesn’t admit is that many House Republicans fear a backlash at the polls in November should they vote for the legislation.  Unlike propagandists at the White House, Main Street believes Wall Street will take care of itself, with or without the bailout.  They fear the money falling into the wrong hands like it did in Iraq when 360 metric tons of $100-bills went missing.  House Republicans and Democrats share the same distrust of turning untold billions over to the White House for safe-keeping.

            Bush warned that failure to pass his bailout legislation would have a catastrophic effect on retirement savings.  That's ironic from the No. 1 advocate for private Social Security investment accounts.  Mutual fund retirement or investment accounts go up or down with the market.  Most financial planners urge investors to take a long-term investment strategy.   Warren Buffet, one of the nation’s most successful investors, frequently advocates a 25-year investment horizon.  “The first thing I would do is say, ‘Let’s not call it a bailout.  Let’s call it a rescue,’” said GOP presidential nominee Sen. John McCain (R-Ariz.), urging Congress to pass the $700 billion plan.  For the “Straight Talk Express,” McCain has no problem mincing words.  If it looks like a duck, walks like a duck and quacks like a duck, then it’s a “bailout” plan.  No amount of spin can say otherwise.

            Wall Street’s bailout out plan will probably pass sometime this week.  Whether it’s good for the country or not is anyone’s guess.  Because it runs against every sound economic principle, it probably will do more harm than good.  During an election year, there’s no stomach for riding out more bad economic news, especially for McCain, whose standing in the polls has gone into a freefall.  While there’s many factors at play, the deteriorating economy has given Barack new life, now leading by around 5% in aggregate polling.  Wall Street would probably benefit in the long run adding another trillion to the national debt.  Blocking the legislation hurts McCain only one month before Election Day.  As the Nov. 4 nears, voters have become more anxious about McCain’s propensity to lower taxes, cut government spending and plan for more war.  Bailout or not, the economy will go on.

About the Author

John M. Curtis writes politically neutral commentary analyzing spin in national and global news. He's editor of OnlineColumnist.com and author of Dodging The Bullet and Operation Charisma.

©1999-2005 Discobolos Consulting Services, Inc.
(310) 204-8300
All Rights Reserved.