Congress Approves Massive Bailout
Today the House approved the massive $700 billion bailout (I’m sure that’s just the beginning) that was approved by the Senate a couple of days ago.
The stock market as measured by the DJIA had been up over 300 points in anticipation of the positive vote in the House. But it dropped 470 points off it’s high for the day to close down 157 points for the day, and down over 800 points for the week.
In addition, the credit markets remained frozen after the bailout was approved.
My own personal view is that the market is trying to form a bottom and it would do that without the bailout. (See some of the evidence here.) The pressure to get the bailout passed was more about getting the taxpayers to pick up the bill for the bad decisions of banks. It would be much harder to sell that politically if the markets had already started to recover on their own.
Today’s purchase of Wachovia Bank by Well’s Fargo without any help from the government, along with Warren Buffet’s multi-billion dollar investments in Goldman Sachs and GE show that big investors are finding great long-term value in the stock market at these levels.
Continued efforts by the government to artificially prop up markets with bailouts and restrictions on short sales will only further erode confidence I believe. Artificially propping up housing prices didn’t work in recent years did it? That’s what got us into this mess. But at along as the public views government intervention in the markets are their salvation, we’ll get more of the same. I fear this could drag on for a long time.
Markets, in order to function properly must be free and honest. The government has a nasty habit frustrating those ideals making it impossible to know what the true value of anything is.
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