Bail Outs

Newly elected President Barack Obama's controlled House gave him the go ahead for his record breaking $819 Billion Bailout. The voting was in party lines with the Democrats winning 244-188. Despite the plea by Obama for bipartisan support, it seemed that the Republicans wanted to cut short whatever honeymoon Obama is getting and vote unanimous against his plan. It was a swift victory day for Obama on the 28 Jan 09. But victory in pushing the bailout does not seem to equate victory in overcoming the recession. Wall Street celebrated with a 200 point rise in the Dow Jones. Of course they should be happy. All the citizens of the United States have to pay $2700 per head to subsidize their errors in investments etc which saw the unprecedented financial crisis for even the oldest and most respected banks and financial institutions. It is massive transfer of wealth from all country to Wall Street. I can expect such rejoicing but the problems are far from over.

Given the record job losses that would crashed any Wall Street indices any day, it turned out that all the major indices had a more than 2% rise in prices. Why such a paradox you may be asking? The Labor Department said U.S. employers slashed 598,000 jobs in January 2009, the most since late 1974. The unemployment rate rose to 7.6 percent, the highest since late 1992. Such statistics doesn't seem the recipe for the rally in Wall Street, isn't it?

The answer lies in the fact that Wall Street was about to celebrate the bailout that would funnel all the money from every citizens into their pockets so as to make up for the crazy bets and losses that they had accumulate over the decades. Ironic isn't it? You take the gambles, if you win, the credit is yours and if you lose, the nation pays for it through the tax payers money. The Senate was expected to vote on its version of a stimulus plan that would include a mix of spending and tax cuts. The Senate bill would cost $937 billion; the House already passed a similar version. Given the politicking and general haggling over who is to take the choice cuts, I guess they are more than ready to pass the bill this time round. Even Wall Street had already brought out the champagne. There is no reason for failure. Or else Wall Street will suffer a huge "loss of confidence" which would result in massive sell offs.

I am still for a free economy. Let the fittest survive. Throughout this month we have seen all kinds of industries asking for bailouts. We have briefly seen protectionism raised its ugly heads. But free economy and free trade isn't just going to happen. It seemed that all those companies are essential to the economy and their collapse will destroy the economy and cause losses of jobs. But even with all the bailouts, there will be huge losses of jobs anyway as the companies start trimming away their fats. Isn't it a good time to let go and let the fittest survive? The money can be used in far better ways than to prop up antiqued companies that could not stand the battle of times.

Frankly speaking the bail outs is just 5% of the mortgage market. By itself it wouldn't be of much use. Much less so after being diverted here and there for the politicians pet projects. What the Bail Out can do at best is to bolster consumer confidence, it should not be seen as a cure all medicine. More of a placebo for the consumers to make them feel good and that the economy is curable. Let the good feeling spread and we may cushion the impact of the deep recession.

It is more than a pity that such an opportunity for administering a placebo is lost when it seems that the administration is wavering between a cure all and a stimulus or whatever in between. Given such wavering, something that isn't that difficult to be seen. The markets waver even more and the Dow is Down at its lowest point in more than 6 years! Will it revisit the 5000 point of 1995? It is anyone's guess and it seems that with the current consumer confidence or rather lack of it, everything is possible. I find it a pity, dumping such a huge amount of money directly into the sea. They may as well mobilize the National Guards and the Air force and drop $100 bills everywhere in the USA. Frankly this is far more effectively than what they are doing now.