Senate Passes the Bailout Package

Good day… And a Tub Thumpin’ Thursday to you! Rocktober started off with a bang for the dollar, as the green/peachback continued to gain versus the euro (EUR) and other currencies, pushing the euro to a one-year low versus the dollar.

We all sat here and shook our heads in disbelief yesterday, as the U.S. ISM Index (manufacturing) collapsed in September, but the dollar rallied anyway. The ISM Index fell from 49 to 43.5, the lowest print since Rocktober 2001, which happened to be near the end of the 2001 recession and right after the awful period following 9/11. So… To me… This really paints the recession picture clear and bright for all to see… So, why did the dollar rally with this albatross around its neck?

Can you say, bailout package? I knew you could! And, all day yesterday, there was one story after another hitting the screens that told of a Senate rescue plan for the bailout package, and… Lo and behold, they did it! Late last night, the news broke that the Senate had passed the $700 billion bailout package and sent it back to the House for another vote. I hope you got the list of names in the Senate that voted for this package, and remind them of their vote the next time they run for office! This is shameful on them… Shame, Shame, Shame… Shame on you Senate!

The only thing us taxpayers and worrywarts have going for us this morning regarding the size of debt in the United States is the uncertain fate that the bailout package has in the House. The Senate did add some inducements to make the vote easier on their consciences! One thing is something that needed to get done a long time ago, and that is raising the limit on FDIC insured deposit amounts. And the other is a little shady if you ask me… It reiterates the authority of securities regulators to suspend asset-valuing rules that the Corporate Executives blame for fueling the crisis.

UH-OH! Are you telling me that in a time where everyone is calling for MORE REGULATION, we are about to make it easier for these guys to put trumped up values on securities they own, without recourse by regulators? Are you telling me that? If that’s so, and it gets passed, then I throw up my hands in the air, and scream mercy, mercy! I give up! What’s to stop this run-away train now? Lord help us…

I could do a Roseanne Roseanna Danna here if that’s not what it says, and say, “never mind”…

I would also thank my lucky stars that I was such a dolt to read it like that! But…

Oh… And DID YOU KNOW…. That foreign banks that have bank operations in the United States can transfer their toxic waste bonds to the U.S. operation, and then the U.S. operation can feed them to the Fed under this bailout package? WHAT! ARE YOU KIDDING ME!? This bailout package is being force fed to us with the “fear factor” of a recession crisis… WE ARE ALREADY IN A RECESSION CRISIS! Have these dolts not seen the unemployment numbers each month? Did they not see that “real” GDP in the second quarter was negative? This piece of the bailout package has me mad as a wet hen! Good thing no one is here, because I’m throwing stuff and yelling at the walls! I’ll be back in a minute; this is all too much for me to stomach!

Former U.S Treasury Secretary Paul O’Neill is in agreement with me on this; let’s see what he had to say about the bailout package….

“Former U.S. Treasury Secretary Paul O’Neill said the $700 billion bank-rescue proposal under negotiation in Washington is ‘crazy,’ with potentially ‘awful’ consequences for the world’s largest economy.

“Doesn’t this seem like lunacy to you? The consequences of it are unbelievably bad in terms of public intrusion into the private sector.”

And… Then O’Neill went on to say that he had a better plan, but couldn’t get it into “play”, and wondered if: “Anyone is thinking over there”. In a nutshell, here’s his plan, and it sure makes more sense to me than these cow pies King Henry is trying to get us to accept.

His plan to deal with the crisis would start with a ‘discounted cash-flow analysis’ of distressed instruments that are clogging the financial system. The government would guarantee the assets, paring back the support as principal and interest payments were made.

“That should take care of the liquidity problem because if they have a government guarantee at a specified level they should trade just like cash.”

OK… So, I told you in the first paragraph that the dollar is still rallying hard, and nothing is standing in its path right now… Except maybe Japanese yen (JPY)… But, I would have to say that yen strength is up against the wall today, as stocks will probably jump through fire hoops to rally due to the Senate passage of the bailout package… And we all know that when stocks rally, that’s a bad thing for yen… And vice-versa.

The rumors I told you about yesterday are still circling the wagons regarding the coordinated interest rate cut, with the U.S. Fed, the European Central Bank (ECB), and any other central bank that wanted to participate. This rumor has fed the dollar’s rally, and caused much pain for the euro. The ECB is meeting right now, as I write. I will be super surprised if the ECB and ECB President, Trichet, cut interest rates today. I just don’t think the ECB thinks this they need to put their dog in this fight. But, I’ve been wrong before, so, we’ll have to wait-n-see.

I came across this yesterday, and didn’t know whether to laugh or cry after reading it. But here you go, and you can make your own call on Alan Greenspan’s comments in the 2002 FNMA Annual report:

“When you measure the level of new (housing) construction…what you find is that it is barely in excess of the aggregate increase in occupied households or household formation.” The current data, he said, “suggest that we don’t have a demand for housing which could all of a sudden slip.” He went on to say, “We are effectively not building up a glut of excess housing. Under those conditions, one would presume that even though we have been having some fairly strong gains in home prices, it is our conclusion…that it is unlikely that we are confronting a housing bubble.”

OK… Now… Long time readers know that I was banging on Big Al Greenspan all the way back in 2000, and have actually never stopped, especially after reading William Fleckenstein’s book and William Rutherford’s book on Big Al… I completely blame him for the tech stock bubble, and I completely blame him for the housing bubble that created the mess we’re in today.

I have run on for a long time now… But this is IMPORTANT STUFF! Because if this gets shoved under the door and we have to accept it, I’m going to have to sit down and write a letter to my darling granddaughter, Delaney Grace, and explain to her how the freedoms her grandparents, and to a lesser degree her mom and dad enjoyed, were stripped away one by one, and why her life may not be as pleasant as ours have been. How we were blessed by growing up in a country where the Constitution was still followed, and the country was free of debt, which kept tax rates at “livable levels”.

Whew, that was deep! I had better head to the Big Finish before I go off the deep end here… Oh! And yesterday I talked about how China was not showing signs of starting up again after the Olympics… But, I had totally forgotten that China has been shut down for a week now for their National Day holiday.

Currencies today 10/2/08: A$ .7855, kiwi .6685, C$ .9375, euro 1.3890, sterling 1.7640, Swiss .8840, ISK 111.90, rand 8.4360, krone 5.9750, SEK 7.02, forint 175.60, zloty 2.4550, koruna 17.83, yen 105.40, baht 34.05, sing 1.4440, HKD 7.77, INR 46.62, China 6.8450, pesos 11.03, BRL 1.9175, dollar index 80.15, Oil $97.30, Silver $12.22, and Gold… $866.55

That’s it for today… You know… I’ve been hearing from Pfennig readers who use Comcast as their ISP that Comcast has blocked the Pfennig at the border. If Comcast won’t let it through even after you call them, then, as always, the Pfennig can be read at its website. I renewed contact with one of my oldest friends in the world yesterday. We had gone separate paths after High School, but would get together at least once a year until last year when I got sick. It’s good to catch up with old friends! And this guy is an “old friend”. We’ve known each other since kindergarten! Dodgers, Phillies and Red Sox were winners on day-one of the baseball playoffs. The underdog/good story Tampa Bay Rays begin to play today. The Vice President hopefuls will have a debate in our fair city tonight at Washington University. The streets surrounding Washington U. have all been closed. Two of the kids on the desk live on those closed streets, so they have “credentials” to come and go. OK… Time to go… Sorry for the deep thoughts today, but this stuff really gets me going… I hope your day is a Tub Thumpin’ Thursday!

Chuck Butler
October 2, 2008