The highly touted Bush Bailout Plan that was to calm the jittery financial
markets world wide, failed miserably in overnight trading in Asia and Europe;
despite the announcement over the weekend by the Bundesbank that it will
instill liquidity into Hypo, a major real estate lender and guarantee private
savings. Recently, other major banks throughout the world have also executed
measures to calm investors. However, fear and panic dominated everywhere as
investors responded to the decline on Wall Street Friday; following the House
approval of the pork-ladened bailout plan that President Bush immediately
signed into law.
The markets move down started in New Zealand and spread like wild fire to major
exchanges throughout the region and then into Europe. The Hang Seng dropped to
a 2 year low and the Nikkei closed at a 4 ½ year low. The severe reactions of
the Asian and European markets appear to press Wall Street as futures trend
lower ahead of the open in the New York.
The need to recapitalize the world’s banking system has become evident to
global financial advisors; and, overtly acknowledged by international leaders.
This directly contrasts to the covert recognition of the recapitalization need
by the Bush Administration. However, savvy U.S. investors have realized that
the bailout plan was a recapitalization effort since Paulson’s announcement
three weeks ago. The White House’s attempt to conceal the true intention by
attempting to spin it as a Main Street problem was correctly perceived by the
public for what it was intended to be, i.e. a Wall Street bailout.
Instead of instilling confidence in the global markets, the bailout has created
concern about why the plan was necessary. After almost 8 years of propounding free
markets and providing deregulation without oversight, if the Bush White House
now believes it critical to execute such strong government intervention, then
is the core problem far worse than originally thought? This question appears to
have been in the forefront for global exchanges today. It has also left money
managers everywhere deeply concerned and tremendously nervous; a condition that
historically does not bore well for market stability.
It also appears that along with the rest of the world, Wall Street questions
the viability of the plan; doubting whether it actually solves the underlying
challenge of relieving the dire housing market by removing the mortgage crisis.
Leading economists have reached the conclusion that a global recession is now inevitable;
and that it will be a long, deep and painful one.
The Office of Financial Stability was put into effect over the weekend;
however, experts do not expect it to initiate any helpful, short-term action.
Instead, most understand that it will take a minimum of one month before this
office will become functional. In the fast paced financial environment that the
world now finds itself, 30 days is a lifetime. Financial companies are failing
in a matter of days as market forces continue to place severe downward pressure
on stock prices. This begs the question, “How many companies will go under
before the bailout plan starts bailing out?”
Neel Kashkari was appointed by Secretary Paulson to oversee this new office in
his cabinet; however, one must wonder if even Kashkari’s noted skills will be
able to put the genie back into the bottle fast enough to avoid prolonged
financial damage at home and throughout the world.
It appears that the Law of Unintended Consequences is proven valid one more
time, that the policies of George W. Bush are foolhardy. The Iraqi War, which
was intended to stop terrorism; fuelled a global terrorist crisis of extreme
danger! The Wall Street bailout plan, intended to sooth troubled financial
markets; appears to have instead unleashed a financial crisis of epic
proportion!
About the Author: Mr. Hamby has lived in 21 countries and
travelled in more. Besides English he speaks 4 other languages. He has been an
international executive for Fortune 500 companies and for a Malaysian conglomerate.
He is a scratch golfer and an expert bridge player. He has been a sophisticated
investor over 20 years and is deeply involved with politics. He lives with his
wife in St. Louis and Las Vegas.
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