What a day!

Around noon today I walked into the deli located on the first floor of our building. A great place, really. Serving gourmet sandwiches, salads, drinks and a variety of other wonderful items. Today, though, they served a bit of news that was hard to swallow.

Located above the refrigeration unit at the corner of the room sits a small television which is always tuned to a financial cable channel. You know the one––it has the running ticker symbols scrolling along the bottom of the screen.

Squinting at the small print from a distance did not hide the fact that today made history. To say the least, it was an unwelcomed surprise to see the DOW drop over 500 points. By day’s end, the DOW made a record drop of 777 points!

In Vegas, if you got three sevens in a row on the one armed bandit, you’d have a pretty big smile on your face. On Wall Street, that’s another matter.

So what happened?

Unless you’ve had your head in the sand this past year you would know that the subprime mortgage market has been in full melt down resulting from an untold number of home forclosures, the likes of which this country has never seen. This in turn has resulted in mondo problems for large financial institutions such as Wachovia, Washington Mutual, AIG, Fannie Mae and Freddie Mac.

Well, the big boys in government, not wanting the free market to take care of itself, decided to try and avoid a worse case scenario by injecting SEVEN HUNDRED BILLION DOLLARS to buy up all those bad notes. The thinking is that this would allow the major institutions to stay afloat.

Interestingly, the stock market was poised to accept this plan as a good idea. This was evidenced by the rapid decline of the markets after news today of failure to pass this legislation.

In the House, two-thirds of Republicans and forty percent of Democrats rejected this plan. When was the last time this many on both sides of the isle voted no together? I guess it shows that the legislative branch of government can work together.

In spite of the market downturn, many will probably see the negative vote as a blessing in disguise. After all, to spend $700 billion of tax payer’s money on a problem of this magnitude, without any guarantee of success, is betting Lady Luck would look in your favor. And what a gamble this is.

We simply don’t have any experience dealing with a problem of this magnitude. The closest was the formation of the Resolution Trust Corp twenty years ago which took in less than a hundred billion, and that lost money when all was said and done. Who’s to say that this time around will be any different?

Let us hope that a better more thought out plan comes to fruition. Like they say, “Haste makes waste.”

What a day!

Be Sociable, Share!

Comments

Leave a Reply