Mr. Hobson, Here's Your Choice

Welcome to the occupation.

The stock market will soar today.   But whatever the Dow does, it doesn't remove the fact that this is a dark day in the history of American financial markets.    The government is ready to announce the mother of all bailouts.   Preparations are made for the creation of a new super-entity such as the Resolution Trust Company - RTC - that was created in 1989 to buy the assets of failed Savings & Loans.

Regardless of what you think about it, there is no other path now.   We are stuck between do nothing and facing more financial disaster or admit failure and work on a bailout.   It's the anecdotal Hobson's choice.   Take the worst stall in the barn or don't board the horse.    Neither choice is good, so in a sense there is no choice.

Most Americans had no hand in creating the problem, but all will eventually pay.  Whether it comes in the form of greater deficits, higher taxes, the loss of confidence in America's financial markets or a combination of all three, all are on the hook.   This means the problem is not over, it's just passed along.   We will clean up the current mess but face another down the road.   The money has to come from somewhere - in this case taxpayer coffers.   There is no free money.   Even the printing of more dollars and 'added liquidity' have a downside: higher federal debt levels and a degradation in the value of American assets.

Still, this had to come.  The crisis in the debt market was the worst since the 1930s.   The stock market only told part of the tale.   Discussions I had with my most trusted contacts were frightening.  The debt market essentially dried up.   We are a credit-based economy, so if lending stops the economy stops.   Banks refused to lend because they couldn't sell debt of their own to back any loans.    The neck was cut off and the body was suffering.   The government is trying to stitch the wound by allowing the backing of commercial paper (short term debt) with government money.   It's the ultimate guarantor.   Thank goodness for rich ole Uncle Sam.

Among the announcement today is that the Fed will buy Fannie Mae and Freddie Mac debt.    This finalizes the nationalization of the housing market.    The taxpayer also now owns AIG, and thus much of the insurance market.  

Maybe Congress can buy a lawn-mowing service and be a one-stop shop for all your home needs.