Sunday, September 28, 2008

on the bailout

Congress is supposed to be in agreement, finally, on the proposed $700 Billion bailout of the big banks and of Wall Street. The devil, however, is in the details and I haven't seen the final elements. However, I think these should be included: help for the middle class mortgage holders; ownership of at least part of any firms that obtain money through the bailout; oversight of the Secretary of the Treasury who will oversee how the money is used; elimination of salaries higher than the U.S. President's for the CEO of any company that takes the money; and limiting the blank check to $250 Billion now with control of the remainder to come later. NO TAX CUTS. The GOP minority in the House can have a stipulation that the secretary can sell insurance on bad debt to firms who prefer to go that way rather than give up their bad debt to the government, but NO TAX CUTS FOR THOSE FIRMS.

And whomever the next president is, we need to regulate the stock markets to prevent this from happening again. One of the basic elements to consider is forcing the markets to return to their essential job: making it possible for people to sell their securities and for other people to buy them when the time comes. The casino players should be told to go play the games in Lost Wages, Nev., or in Atlantic City, N.J. It seems to me that both in 1929 and now, the problems in the market occurred because people were playing games with stocks to the point where the money was not in the market to the extent that it had to be and speculators were driving the boards up and down. Back in, I believe it was, 1968, Big Blue, IBM, had one quarter during the inflation of Guns and Butter when it didn't earn more money than it had the previous quarter. It didn't earn any less, either. But its stock took a tumble.

I have claimed for some time that we have two economies in this country: the great national economy centered on the stock and futures markets and the Main Street economy that most of us spend our money in. From my observations, I would suggest that those economies are represented in the stock markets in two ways. What I'm about to say may seem more general than it should be and some players may be active in both markets, but I think we can break out, at the minimum, two categories. The first is the Main Street investor who has a 401K with his employer and/or an IRA who puts his or her money into stock or mutual funds with the intent to watch them build up over the years until he or she is ready to draw them down for some special need such as education or a first home or retirement. The second is the gambler (the most notorious were the day traders who lost a lot of member in the first years of this administration). These are the people who sell short, buy puts and calls and derivatives with no intention of hanging onto them more than a few minutes or a year plus one day (if they want to get capital gains tax rules on their increase or decrease). These are the people who make the markets risky. Another word for them is speculators. And until their role in the stock market declines we will keep having this problem.


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