Waiting for the bailout shoe to drop

The markets started this week with quite a fall on Monday with the Dow down over 4% and gold up strongly. Tuesday and Wednesday have been a good bit more calm with stock prices falling slightly along with gold. It seems investors want to hold onto cash until things become more certain. Everyone seems certain that the government will bail out Wall Street from this situation, but there seems to be some disagreement about the details. 


I’m sure that there are a legion of Wall Street lobbyists right now working furiously to try to get Washington to pay top dollar for all of the dead assets currently sitting on so many balance sheets. And if this were anything but right before an election, they’d probably get their way. But Senators McCain and Obama are no doubt wondering how this bailout is going to look to the voters if Wall Street makes out like bandits on taxpayer money.  So now Wall Street is uncertain as to what the terms of the plan are going to be.

The American voter, much like the American consumer, is expected to have a very short attention span. They aren’t suppose to be able to really understand what’s going on for themselves, you see, so this bailout plan has to be turned by the political pundits to become something so easy that your average voter could understand it. “Wall Street is bailed out by your money after a long period of making money off of you,” is just the kind of thing to work up voter ire. It is, as Bill Bonner suggests, just one grand spectacle. 

The one question that I’m sure will never be asked by either of the candidates or anyone, is “Where is this $700 Billion supposed to come from?” Much like the war in Iraq, it’s just expected that someone will be nice enough to front us the money for us to continue down the path of spending far more than we’re making. That someone has increasingly been foreign investors, and I’m not sure how well they’re going to react to our asking for another Trillion or so. They probably think that it’s a shame that they don’t get a voice in this election, but if things keep going like this it’s a good guess that their time will come. 

After all, a politician may get elected promising to keep us safe from terrorism by “fighting them over there, so we don’t have to fight them over here”, but when the American people have to actually start paying the real bill for these military misadventures, we may suddenly find that we’ve lost our taste for blood. Let’s not forget that we asked a lot of foreign investors to buy these same toxic credit derivatives in the first place, and no government has been nice enough to step forward and bail them out.

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