Open Thread: PPT to the Rescue?

Regular readers of this blog know I don’t believe in the Plunge Protection team.

Exhibit A has always been the Nasdaq’s 78% plunge from March 2000 to October 2002. If the PPT couldn’t stop that runaway train, what can you expect them to accomplish here, other than delaying the obvious and inevitable conclusion to a market drunk on cheap money and an economy driven by ultra low rates?

However, I do not believe the Fed or the White House are going to sit on their hands in an election year as the whole house of cards collapses around them. (this is true, regardless of which party is in the WH).

So let me open this up to the assembled multitudes:  What is the likeliest course of intervention?

Fed cuts?
Tax cuts?
Spending projects?

No answer too outrageous will be mocked. . .


What say ye?

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What's been said:

Discussions found on the web:
  1. VennData commented on Jan 8

    We need to let the imbalances work themselves out. That’s the free market.

  2. TKL commented on Jan 8

    Whatever they do, let’s hope they don’t start another war.

  3. UrbanDigs commented on Jan 8

    I think fed rate cuts and more targeted TA’s will be done. In addition, Im sure more govt/paulson sponsored plans to assist homeowner defaults/foreclosures will come as well.

    It is real ugly out there. As I said a number of times months ago: BUY SKF on dips and GOLD!

  4. Steve Roy commented on Jan 8

    The President will pound the bully pulpit and yell that tax cuts are needed NOW to “get the ‘conomy moving again!”

    The Democrats, after Harry Reid and Nancy Pelosi announce how that cuts are an unwise and fiscally irresponsible thing to do, will dutifully pass tax cuts.

    And then say: “What could we dooo?”

  5. steven commented on Jan 8

    fed cuts because rates have gone so low in the recent past that taking them down is somewhat expected, although irrational.

    tax cuts as well, as both parties love tax cuts especially during election years

  6. KELLY PERRY commented on Jan 8

    Wall Street and Institutional investors will sell every rally to the public, break the buck on the money market accounts to rob the savers, manipulate precious metals down via index changes and margin calls, scoop them up for themselves, hunker down and let ’em eat cake.

  7. John Borchers commented on Jan 8

    They should do nothing. I liked the original Fed the best. The one that said it would not interfere with people making bad investments.

    Let the shorts win, win big taking the unintelligent out of the market so we can get the show on the road.

  8. JJL commented on Jan 8

    Plenty of stimulus and rescue plans will find their way to implementation this year. Here are my guesses, with number 1 already in the works:
    1. Extension of “Hope Now” plan to all mortgage resets not just subprime (contained?)
    2. rebate checks to all taxpayers in the amount of $300-$500
    3. FED Funds rate at 1.5% by year end
    4. CFC taken into control by FNM with multi bank backing and FED liquidity
    5. Easy walk away plan with limited tax penalty for foreclosures
    6. Even more government hiring to limit unemployment numbers

    Thats quite a list and I imagine quite a bit more will be tried!

  9. Eric Sebille commented on Jan 8

    Cuts to 1% and enacts price controls on food and gas. What a joke this administration is.

  10. MarkTX commented on Jan 8

    Probably a cocktail of what you listed, but

    I believe they will start to “Announce”

    their direct intervention in the market

    to the public and a continuation of

    the “official numbers”, empty promises,

    empty talk, hope, fear…

    Stockholm Syndrome is a bitch isn’t it?

  11. Neal commented on Jan 8

    The only options are tax cuts and rate cuts. All other options are too difficult to develop, analyze, explain or justify in the months before the next election.

    The buck (or empty wallet) will be passed to the next president, who will have to be the real “decider”.

    And, another source of employment, defense spending and distraction may be opening up in Iran soon.

  12. gino commented on Jan 8

    They will arrange photo-ops and plenty of speaking tours to bread lines, while the Bushies chat it up on the limosine drives and airplane rides in between. All of the million dollar bozo’s who thought they understood economics will discover instead their ass being handed to them, but rather than revamp their defunct paradigm, they will mistake the gloosy shean of their buttocks for recovery. Redeeming themselves with new lies, they will resurrect new myths and untruths.

    Because they are insane. It’s that simple.

    “Insanity is doing the same thing over and over again and expects different results” — Albert Einstein.

  13. mw commented on Jan 8

    As we get closer to election time and if this convergence of “messes” starts going over the deep end, the “Washington Gang” is going to throw everthing in – including the kitchen sink…. ” A chicken in every pot”. comes to mind. Yes all of your above mentioned stimuli will be used.

  14. craig behnke commented on Jan 8

    they will at least do a ton of jawboning…but that’s worth squadoosh. what will anger me is if they do a ton of intervention and create a sucker rally that rewards schmucks and crushes well-researched short positions. i’m not an economist so i don’t know if mix of those stimuli will avert a recession or prop (or rally) the market…so are any of you less negative, less short, or changed investment positioning because a potential stimulus package??? any thoughts appreciated.

  15. mappo commented on Jan 8

    When has this administration not seen a situation that called for tax cuts?

  16. Andreas commented on Jan 8

    I suspect the Fed will raise rates in an effort to recalibrate the yield curve so that the big banks can dig themselves out of their solvency problems. Essentially a stealth bailout of banks, by laying it off on the general population. Likely, accompanied by increases in money supply (but who would know anymore?) and some degree of inflation. Didn’t something similar follow the 3rd world debt defaults in the late 70’s early 80’s?

  17. Pat Gorup commented on Jan 8

    FED rates cuts and more auctions, watch out inflation. Paulson will lobby Congress to pass changes which will allow Fannie and Freddie to take on jumbo loans, watch out U.S. taxpayer. And Bush, he’ll continue to exort making his tax cuts permanent while looking like the MAD comic book character. Thank God that loser will be gone in a year!

    I believe in the PPT & so do several other people who have blogs. It makes sense and there’s actually a chronological history of their financial manipulation of events going back to King Edward of England. Usually, where there’s smoke, there’s fire.

  18. Winston Munn commented on Jan 8

    Features of the Ancien Régime that led to the French Revolution. Among the economic factors were:

    1) (WARS) Louis the XV fought numerous wars bringing France upon the verge of bankruptcy.

    2) (BORROW & SPEND) The national debt amounted to almost 2 billion livres. The social burdens caused by war included the huge war debt, made worse by the monarchy’s military failures and ineptitude, and the lack of social services for war veterans.

    3)(RECESSION) A poor economic situation and an unmanageable national debt, both caused and exacerbated by the burden of a grossly inequitable system of taxation.

    4) (SUPPLY-SIDE ECONOMICS) The largest landowner in the country levied a harsh tax on crops known as the dîme. While the dîme lessened the severity of the monarchy’s tax increases, it nonetheless served to worsen the plight of the poorest who faced a daily struggle with malnutrition.

    5) (CLASS POLARIZATION) The continued conspicuous consumption of the noble class, especially the court of Louis XVI and Marie-Antoinette at Versailles, despite the financial burden on the populace.

    6) (SERVICE JOBS + INFLATION) High unemployment and high bread prices, causing more money to be spent on food and less in other areas of the economy;

    7) (HEALTH CARE) Widespread famine and malnutrition, which increased the likelihood of disease and death.

    If memory serves, the next intervention should be to storm the Bastille.

  19. 2and20 commented on Jan 8

    hopefully that should kill the italics?

  20. wabrew commented on Jan 8

    Lots of discussion with Soverign’s who hold Billions of $. PPT will talk them into buying big pieces of America for “pennies on the $”

    The argument goes like this — you can hold our $ and watch them go down the tubes vis-a-vis your currency, or, you can buy our stocks, our real estate, and our factories and at least ride the sure-to-come inflation up with hard and soft (stocks) assets rather than ride the $ down. Ironically, this action will likely to also cause the $ to firm.

  21. 2and20 commented on Jan 8

    nope didn’t work.

    anyway…market forces push oil back down to $25 a barrel and economy starts coming back.

    failing that, invade Norway…plenty of Oil and way less likely to fight back. :)

  22. Completejoke commented on Jan 8

    a bailout of CFC, MBI and ABK is definitely coming. no doubt about it.

  23. 2and20 commented on Jan 8

    and one other thing…i don’t get everybody’s obsession that inflation is coming? credit unwind, recession, defaults, unemployment up…sounds deflationary to me.

    i assume everyone here who believes in inflation is short 30 year treasuries? goog luck with that trade, i reckon they are on their way to 3% (trading at 4.30% today).

    read Mish if you don’t already, that’ll turn you into a deflationist (and a realist).

  24. D H commented on Jan 8

    Tax cuts would seem to make Bush happy on the way out, get the masses cheering during the election year, and Obama is in favor of tax cuts (if you believe he is the Presidential front-runner).

    The other issues are much harder because food, energy, and health care inflation are on the table.

    I imagine the Fed will try to find the perfect recipe and, as always, the economy will once again prove too complex to fix “just right.” Thus, we will see some deflation from a recession while the Fed weakens my paychecks by printing money for Washington to spend in the domestic economy.

    Ideal: let the leveraged economy unwind for a year or two, then lower rates and cut taxes to start a new healthy growth cycle. it may be painful for some in the short term, but we will all win in the longer term.

  25. mhm commented on Jan 8

    They will go with:

    a) High real inflation, low unreal CPI. It devalues the long term debit and whatever is indexed by the CPI. This is a veiled default on creditors.

    b) Dollar may devalue even further. The so called “strong dollar policy”. This is a veiled default on foreign creditors. Risky and may thrown the world in a long recession.

    Both scenarios are based on not paying the full, huge debt amassed by this administration. The first scenario is just starting. The second, “scorched earth” tactic, is on the table and I believe The Decider and his Troupe are stupid enough to use it.

  26. KirkH commented on Jan 8

    Die italics!

    The more they do the more they look impotent. I’m holding on to my gold until rates hit zero. Deflation camp makes good points and they’re not even talking about the moore’s law/tech and the shrinkage of necessary products as a percentage of GDP.

  27. Grodge commented on Jan 8

    I’m not usually a conspiracy theorist or anything, but after reading Winston Munn’s comment it occurs to me that…

    …a war with Iran…

    would serve to achieve several objectives all at once. “International incidents” in the Straits of Hormuz do not likely happen by accident when the Cheney administration is in power.

  28. 12th percentile commented on Jan 8

    Man, if I had a nickle for every time my wife talked about the “shrinkage of necessary products” I wouldn’t need to spend time on investment blogs.

  29. major tom commented on Jan 8

    I have no doubt the PPT exists as the Presidential Working Group… Why not have some people together to try and calm the markets – the problem is that the point at which their intellect is questioned, having them try to calm the markets may actually work in reverse.

    Take Paulson and Bernanke, each espoused on many occasions that there would be no spillover from housing – and alas, both were incorrect. At some point, credibility is shot and the market sees it – that is where we are. The market can’t trust policymakers, government officials, each other (i.e. banks and brokers for lying about how much subprime slime is out there) and now everyone is getting out because the writing is on the wall for the recession.

  30. Marcus Aurelius commented on Jan 8

    Legalization and taxation of marijuana. It’s our nation’s #1 cash crop.

    Just sayin’.

  31. humanface commented on Jan 8

    liquidity injections will fail to restore the broken trust between borrowers and lenders. tax cuts, spending projects, and vouchers make nice headlines but will fail to stimulate conusmer spending as saving rates revert to the mean. and as this country’s assets depreciate against global currencies, a huge influx of foreign investors will come in to buy up american assets presumably on the cheap but they will get burned as leverage works its way out of the system. and when there’s nothing left of value anymore in this country we’ll resort to securitizing kiddie porn and selling it to the japanese.

    you heard it here first.

  32. Armchair Fed commented on Jan 8

    My vote is for rate cuts. And I hate myself for it.

  33. smash commented on Jan 8

    Invade Canada. Oil, gold, energy, water, small military. Other countries will come to our defence. It will keep idle hands busy, increase production. and let the world know how easy we’ve all had it lately.

    What more could you ask for?

  34. MAS (Seattle) commented on Jan 8

    The end of the writers strike.

    Nothing like new episodes of According to Jim to cushion the blow of losing half your 401K.

  35. mhm commented on Jan 8

    For those that think consumer inflation will be “contained” by the recession I offer this (I mean consumer inflation. Don’t care if the Dreamliner or the M1A1 Abrams are on discount):

    – People cut back spending to the bare necessities, food, energy, health care (did you hear the ATT warning today?).
    – Food inflation was a worldwide phenomena in 2007 and will continue. Soybean, wheat, corn, milk all reaching new highs. The US does not provide specifics but many countries do and it is in the 10%..20% range.
    – Energy… well, check the price of Oil (and now corn).
    – Health care… check your monthly statements and pharmacy bills.
    – To the above add the cost of the imports paid in devalued dollars.

    You may still think the is no inflation and there will never be (denial phase?) but it is real and it is here.

  36. 12th percentile commented on Jan 8

    Invade Canada. Oil, gold, energy, water, small military. Other countries will come to our defence. It will keep idle hands busy, increase production. and let the world know how easy we’ve all had it lately.

    Don’t forget their top notch weed.

  37. crack commented on Jan 8

    Bush will default on some T-Bills to make the dollar worthless. This will cause hyper-inflation and Bush will report record stock market gains on a nominal basis to show how great the economy is doing.

  38. boomdotbust commented on Jan 8

    You do realize invading Canada just means we Canadians get another opportunity to burn down the White House when all is said and done. But seriously, we do have great weed. And don’t forget our beer.

  39. nonadamas commented on Jan 8

    or some other ‘faux’ terrorist scare to replay 9/11
    with more defense spending.

  40. zero529 commented on Jan 8

    The answer to what will happen (not what should happen) will likely include war with Iran. It fits too perfectly with this administration’s fundamentalist Christian principles. You provoke Iran, Iran sends missiles to Israel, the world lets Israel claim the West Bank and Gaza after all, and *bada bing* you’ve just cleared a huge hurdle to the Second Coming (returning all of the Holy Land to Israel’s control). I kid you not. It what all of those Christian Zionists have been rooting for this whole time. Scares the bloody hel^Dck out of me.

  41. gary commented on Jan 8

    As we both know the markets are just too big to be manipulated in the long run. The Fed embarked on a massive currency devaluation that lifted the market out of the 06 bottom. Once the dollar broke through long term support this strategy quit working. At that point all the extra liquidty just started leaking out of the paper markets into the commodity markets. The Fed is stuck Rate cuts at this point would destroy the dollar. The market has only been able to rally when the dollar is strong. If the dollar were to break to new lows we could see a market crash. The only option left to the Fed at this point would be to raise rates and control inflation. It won’t stop the recession but it will soften the blow. I doubt they will do it though. I’ve posted numerous charts on the SMT illustrating the dollar effect on the markets.

  42. Bloated Jeff Macke commented on Jan 8

    >>Canadian beer blows, ya hoser. Work on your mullet and your pale transparent slimy skin.

    Blame Canada, theyre not even real country anyway

  43. Marcus Aurelius commented on Jan 8

    A national energy independence program, beginning with the universal solar panel initiative – spending and tax/social benefits.

  44. Winston Munn commented on Jan 8

    How exactly do you reinflate when the pump you hold is not connected to the balloon?

    The multiple credit bubbles have occured mainly in the capital markets, outside the scope of the Fed’s interventions. The Fed can infuse liquidity, but they cannot create capital.

    I think it’s checkmate – either that or we change the rules.

    “Knight jumps Queen. Bishop jumps Queen. Pawn jumps Queen. Gangbang!”

  45. Robert commented on Jan 8

    Rate cuts, rate cuts, rate cuts. If things get bad, rate cuts will be large and frequent. The markets will rally the first few times, but like a drug addict, Wall Street will require more and more and more to get the same high. Eventually, the FED could be paying people to take dollars off their hands and it will not matter. This market’s going down. Wait for a pullback in gold, and start loading up the truck!

  46. john jansen commented on Jan 8

    The concept of a Plunge Protection Team is ,I think, the creation of the fertile imagination of the economics reporter for the tabloid New York Post(which in itself is a bit of an oxymoron). He never addresses (nor has anyone else who posits the PPT) the issue of what happens to the assets purchased by the PPT. I assume that the purchases are made by either the Treasury or the Federal Reserve. Each of those organizations is rather transparent about their cash flow. So in the case of the Treasury it would show up when they release their daily cash statements. The Fed publishes its balance sheet weekly and if such a purchase happened in the real world as opposed to some fantasy world it would show up in some asset class on the Fed balance sheet. To the best of my knowledge neither of those circumstances has happened,ever.

    So show me the assets,please.


  47. a5 commented on Jan 8

    First let it tank NOW!

    Get the 20% haircut over FIRST — then spend the rest of the year rebounding up until Nov.

    Going to be a great counter-trend rally entry by mid-Feb.

    It will work if equities start out in the sub-sub basement. No intervention until Valentine’s Day.

  48. matt wilbert commented on Jan 8

    In my view, the immediate, underlying problem in the credit markets and the economy is caused by the deflation of a specific asset–housing. Since housing prices have risen too far, as far as I can see, the only thing that can be done is to inflate everything else to contain the nominal decline in housing.

    In addition, the government could provide some kind of tax credit against housing purchases, or some kind of loan subsidy.

    The idea here is NOT to reinflate the housing bubble, which would just make things worse later (not that the current administration would care) but just to allow the relative decline of housing prices without destroying the financial system. And I have no idea if it would work–it would certainly be dangerous. But if the patient is going to die otherwise, sometimes a dangerous treatment is the appropriate option.

    Another idea would be for the government to buy the bond insurers either now or after they go bankrupt.

  49. Rob Dawg commented on Jan 8

    President Chelsea managed to get Supreme Court Justices Bill and Hillary to stop squabbling long enough to rule on VP Jenna Bush’s Senate tie breaking resolution that the black helicopter be sent back in time to the contested election of 2000 to “set right” the election results. From her frozen bunker in Santa Monica California President Chelsea Clinton-Federline-Swartzennegger said the latest Global Ice Age Scientists insisted the former President, now baseball commissioner, Gore erred in ordering the draining the Great Lakes to make room for ethanol crops back at the start of the century…

    Better that than believe in the PPT being able to make good decisions. ;-)

  50. Uncle Sam’s Cabin commented on Jan 8

    “Hope Now” extends beyond subprime.
    The Decider sends us all $500 checks.
    And the Fed funds rate gets a serious haircut.

    Shortly thereafter, all hell breaks loose in the Middle East. Iran and Pakistan become a depository for our surplus of bombs.

    The American people will be sold the story that the economy was on a great recovery, but those smarmy moustached crazies wrecked it with their misbehavior.

    When the economic walls come tumbling down, our Rulers will try to direct the American misery at those they want to take down.

    And it will work.

  51. paul commented on Jan 8

    1.Tax Taxable Income – the line before the tax is calculated – Taxable income above $650,000 new tax rate 55%
    2.Freeze mortgage payments at before the increase and increase the payments by 20% after the first 18 months and each 12 months thereafter by 20% until the payment gets to where it belongs. Do not allow the lenders to increase the Principal Balance by the lost interest in this program.
    3. Break-up large investment firms – into profitable components. Investment advise cannot be part of the same corporate structure that is trading.
    4. Prayer and Hope are drugs
    5. try to encourage strong independent candidates for President to break the strangle-hold the two party system has on our government. It’s not too late – even if they have to jump parties.

    there is more but this is too much

    Hope is a drug – action gets things done

  52. Johnny Vee commented on Jan 8

    Rate cuts under 3% in 6-months–with more to follow–
    Tax rebates to the consumer slaves–
    Fiscal stimulus like highway, bridge, etc. work projects–this will fill the empty houses with works.
    But it won’t help much and the recognition that the Gov can’t stop the asset deflation will only add to the fear and exagerate the correction–I will be back in the market when Google and Apple are down–That is the gloom I am looking for.

  53. Stuart commented on Jan 8

    re: Canada, don’t forget prescription drugs..

  54. paul commented on Jan 8

    I always like the free-market – ya know – let the free market work – well take the patient off of drugs – and let the free market prevail and you’ll get a dead patient! There are so many hypodermic needles in our economy that it’s hard for the government to find a good vein that isn’t collapsed – for their next drug to keep the patient standing..We are going down – and it’s a good thing – we need to hit bottom in order to “clean house!”

  55. Francois commented on Jan 8

    Tax cuts
    Rate cuts
    Abolition of the capital gains tax, the estate tax and reduction of the effective corporate tax rate to 1%.
    Cash will be taken out of circulation so we can all be enslaved by the credit card companies.
    A fee on breathing will be enacted to offset the tax cuts.

    Oh! was about to forget the war…hmmm…let’s see. Suggestions were for Canada (mainly for the beer and weed, but as an extra, some oil, fresh water and gas shall come this way) and Iran.

    What about Cuba? Embargoes have been a flop and the neocons sez we gotta do sumthin’ about them Communists!

    There’s plenty of options available. Why fret about the PPT?

  56. Hank commented on Jan 9

    There will be a lot of talk and a lot of assurances that the fundamentals are solid -all that is needed is to make permanent the Bush tax cuts.

    Once GW realizes how deep in doo-doo we are really in Dick Cheney will convince him that war with Iran will be the Hail Mary pass that can salvage his legacy and bring peace, democracy and prosperity to the world. Since the Iranians will be waiting for us with flowers and chocolates all we’ll need is a few divisions or maybe we could just send Chuck Norris.

  57. mock turtle commented on Jan 9

    Marcus Aurelius at 11:15 pm has it right in my opinion.

    There’s nothing left to inflate that is readily inflatable except a national public works program.

    And this time instead of building dams and interstate highways, we may well build a multi source non carbon based energy generating system that will power 21st century electric and, or, hydrogen based modes of transportation.

  58. vohden commented on Jan 9

    We all know that the only way to solve this mess is to remove the toxic debt from the system. Since it is too much for the banks and heggies to write off without going bk, gov has to step in or it all goes down.

    Fed and Bush Adm make it known to banks and heggies that they will take all the toxic waste against 10 year loans instead of the rolling 2 week or 60 day loans. Lets say up to 1 Trillion. US sells the debt overseas over 5-7 years as usual and as it is sold is removed from the banks/heggies tier 2 and 3 off book accounts. The money held by the Chinese and oil produces is more than enough to cover the debt. I am sure they would rather do this than see the dollar fall to zero.

    This frees up the banks and heggies to start the loan cycle all over again, but with some reasonable regulation i.e no more subprime liars loans etc. And the Fed can now do their job and stop these bubbles before they get out of hand.

    Mortages are given to Fannies and Fed gov ramps up hiring to service the loan mods. Mods are set to fixed 40 year loans at fed funds rate + 1% or so. That way fed funds only need to drop to 4% to allow for 5% mortages. Again all ultimately financed by overseas oil and export dollars.

    Throw in a $1000 immediate pay out to wage earners making less than $50K per year to stimulate consumption for the short term and we are there.

    This could be set up in 30 to 60 days and announced long before the next election. Bush adm doesn’t even need the dems to approve.

    Remember, these dollars are peanuts compared to the social security liability over the next 10-20 years.

  59. Rainbolt commented on Jan 9

    The question seems a bit pre-mature. Come the 15th of February, the markets will be in such turmoil, and take it for what it will, it will be a black soup of chaos. If the system intervenes, as they will, it will incite a false sense of clarity.

    What rides this, and has perseverance and continuity shall be the determining moments in how to act.

  60. tom a taxpayer commented on Jan 9

    Are you ready for New Deal 2? I fear Congress and all the President’s men will be concocting a mish-mash of programs to save the banks, save Wall Street, save the depositors, save the pension funds, save the homeowners, save the state/city investment pools, save the bond insurers, etc.

    Talk about pork barrel spending! Talk about earmarks! Talk about Christmas tree bills with 100 Senators and 435 Congressmen playing Santa Claus!

    But even worse, talk about all the new laws and federal regulations that will be dreamed up and rushed through to “fix the system”. And this is an election year. Need I say more about the grandstanding, pandering, and heights of idiocy that 2008 will bring?

    I fear we are about to enter a year of one Rube Goldberg legislative and executive scheme after another. The only thing worse than the financial smoke-and-mirrors that led to this crisis is the forthcoming Congressional and Presidential smoke-and-mirrors that will create new and worse crises.

    God help us.

  61. TMB commented on Jan 9

    Fed cuts?
    Tax cuts?
    Spending projects?

    I take all

  62. Francois commented on Jan 9

    “But even worse, talk about all the new laws and federal regulations that will be dreamed up and rushed through to “fix the system”.”

    We can fear an excess of laws and regulations. But what about the ABSENCE of laws and regulations? The strongest get it all? What if you are NOT the strongest? Isn’t there a notion of level-playing field hanging around somewhere? They use referees in sports and that has not strangled sports into oblivion right?

    Even worse are the laws that are tilted toward a particular group to the detriment of the rest of us. The way certain laws are written today, this is what we got ourselves into. It’s as if the Patriots, on top of their great team, had to run only 5 yards for a first down while the others had to run 15.

    Mind you, there’s a couple of laws and regulations that I, as a consumer and taxpayer, would welcome.

    First of, a Clarity in Consumer Price Act could do wonder to eliminate all the bloodsucking with junk fees that banks and corporations have become so addicted to. Think about it: some banks draw >60% of their profits from fees while generating zero in useful economic activity. Stupid me, I thought that banks were in the lending business. For more information, read “Gotcha capitalism”. Talk about an eye opener.

    Second, I would not shed one tear for the executives with a law giving back some real power to shareholders. It galls me to no end to see investment banks showering $38B in bonuses this year alone after a year of dismal performance and exposure of their stupidity in the mortgage/credit mess. Sure, I can short the hell out of the banking stocks, but that won’t enforce any discipline in the boardroom won’t it? And let’s not talk about mutual funds and Co. shall we?

    An obvious target is the tax code: I do not buy one femtogram (it is very very very small) of the argument that tax cuts targeted to the wealthiest of us is good for everyone. Quite the contrary in fact. The last time I checked, the Constitution allude to a government by the people and FOR the people, that is, ALL the people. As far as the tax code and regulations are concerned, we’ve drifted very far from that in the last 25 years or so.
    An excellent book on this affair is “Free Lunch” by David Cay Johnston: it is enough of a read to make any decent person fantasize about becoming a lifetime member of the International Leftist Movement.

  63. Steelduck commented on Jan 9

    Now that Mr Trichet has already said that the ECB will not ease rates in the euro zone, it would be difficult for the Mr Bernanke to cut rates aggressively in the U.S as it would inevitably deal a fatal blow to the dollar.

    The current administration has very few cards left to play and will most likely create a diversion by picking up a fight with Iran. Look for headlines on the subject as soon as Mr Bush comes back from Israel.

  64. Francois commented on Jan 9

    “it would be difficult for the Mr Bernanke to cut rates aggressively in the U.S as it would inevitably deal a fatal blow to the dollar”

    I wonder if the behavior of the gold price is telling us that this is exactly what could happen. It is now tickling close to 895USD tonight a gain of 30 in 24 hours.

    Time will tell.

  65. Barry Green commented on Jan 9

    Economics being more a matter of sentiment more than anything, here’s a couple good quotes to ponder…

    It is easier to act yourself into a better way of feeling than to feel your way into a better way of action. -O.H. Mowrer

    History doesn’t repeat itself. People repeat history. Rev. Deborah L. Johnson

    People will storm the Bastille if we start another war. The military industrial complex has to be satisfied with what its got since 9/11.

    Tax & rate cuts coming…

    Commodities, oil and gold will decline significantly.

    US needs a fresh new face to make good with the world.

    Way more exciting year than 2007!

  66. Tralala commented on Jan 9

    Fed cut fed cut fed cut
    Tax cuts on something completely useless
    Spending projects, again, on something useless
    Vouchers for rental housing (aka bail out)

    None of which will work.

    So, they’ll look for a nice red herring like a war with Iran which is completely pre-empted by a strike from Osama bin Laden. The Middle East is in flames which creates a sudden fuel shortage that coincides with an important crop failure. Markets crash and do not recover. Greenland collapses into the ocean. China briefly laughs just as a flu pandemic kicks in and the Gulf Stream changes direction.

    At which point, everyone finally realizes that just a little less greed and a little more kindness can go along way towards everyone living a healthier and happier life.

  67. Mike G. commented on Jan 9

    I think the US will create a stealth “US Sovereign fund” with which it will buy billions of dollars worth of index puts. Then after gaining 50% – 250% on them they will sell them and deliver the money to the “middle class” in a new fangled “middle class dividend”. This will inject liquidity without weakening the dollar.

    No? Oh, wait, that’s what I’m doing (on a smaller scale)! Never mind.

  68. Eric Davis commented on Jan 9

    Great Question,

    I’ve enjoyed toying with this for 30 minutes or so.

    “What is the Likeliest Course for intervention?”

    Most likely; pick your childish Easy choice “Simple solution.”…. Stress Lip Service, rate cuts, tax cuts, increased spending. Outsources the fed and Treasury to Haliburton

    But it won’t work! and will continue to get worse….. Why? Because it’s not the Easy Path, it’s the Hard one.

    If the Question was “What will intervene in this “Train Wreck” and get us back on Track?”

    It will be when we stop looking for the Easy answers, Nut up, Start acting like Responsible Adults. Get Spending under Control, Provide Stimulus where it’s needed and stop working on the Wheels that already have too much Grease, Get us back to; personal, federal, corporate responsibility.

    Little doses of penicillin or Lipitor don’t help a heart attack, sometimes you have to rip the patients chest open, Unclog the arteries, and he has to spend rest of his life eating fruit vegetables, and getting some exercise.

    That would be, Assuming the patient wants to live.

    Fast food answers and Lipitor only delay the inevitable.

  69. JasRas commented on Jan 9

    Fed and Politicians will pull out all the stops they can. For politicians, to be part of “the solution” will be a chance at political immortality like those who legislated during the depression.

    My fear is they will do all the wrong things and consequently prolong whatever it is we are on cusp of…

    Fed lowers rates–a lot. But their lack of action early, makes it appear like the barn door being shut long after the animals have left. Being “data driven” caused Fed to be reactive rather than proactive. Lower Fed rates do no translate into lower rates elsewhere. Banks fail to lend out of fear and capital hoarding.
    Consumers are spent up, not pent up (to borrow a line from Kass)


    Get Nationalistic. Tariffs, and policies hampering international trade become en vogue. Immigration policy gets worse. U.S. loses its one last edge, intellectual capital. With 70% of PHD candidates being foreign, but unable to remain in the U.S., fresh new PHDs will be exported overseas. R&D will shift overseas and the U.S. loses a huge growth engine.

    Tax the rich. Sunset provisions see the sunset (easiest political tax increase ever! Thanks, GW!) Tax rates move up. Hurts the middle class again as they are the only ones with no voice in D.C. Bailout program for housing locks many into “new’ multi-generational mortgages (a la Japan), 50 year and 60 year mortgages are introduced in regions with unaffordable housing, like California. Bailout prolongs the supply of homes. National, publicly traded homebuilders go the way of the buggy whip.

    In the end, the outside interventions are all the wrong moves that lengthens the time for recovery. The High Net Worth people go into hibernation with their money. Shift to preservation tactics and away from Hedgies, Private Equity and Venture capital (at least domestic versions)

  70. Justin commented on Jan 9

    Please, I hope they (the gov) just tells the american people to get off their collective asses and produce something besides debt.

  71. Funkman commented on Jan 9

    Regulation and de-regulation.

    Many booms and busts are not via rate cuts or taxes but by sectors.

    The financial sector is hurt. They are also run into a duality of over and under regulation. IIRC – banks are regulated by 14 different agencies.


    Likewise, deregulation over the pond is allowing London to be the financial capital of the world.

    So there is a 3 point solution
    1) Find the overlap in agencies and minimize (but possibly not totally eliminate)
    2) Take the best of the deregulation done to the London banks and apply them here.
    3) Add new regulations (or at least create the proper oversight) for obvious gaps that lead to the “credit crunch”

    Voila … no rate cuts and no (major) tax changes.

  72. Justin commented on Jan 9

    Funkman, we are so going back to a “Hongchong” type world economy. But in the context of a new socialism. Is this a good thing? I think so… “socialism wrapped in capitalism” what will it bring?

  73. Eric Davis commented on Jan 9

    Wait: OUTRAGOUS.

    I say we federalize and liquidate, Merrill, CFC, MBIA, AMBAC, ACA, CITI, Lehman… Use the money to bail out homeowners and investors.

    caveat emptor to shareholders.

  74. lurker commented on Jan 9

    thanks for the posts–have me laughing and crying this morning–Canada posts very amusing–IRAN guesses too creepy.
    but thanks for all.

  75. lurker commented on Jan 9

    Heads Up–Goldman has finished getting SHORT it would seem, as now they are calling a recession. Hey where did Paulson work before? No PPT this time, until “they”

  76. Stuart commented on Jan 9

    Perhaps not the PPT, but it’s suspicious that the dollar usually rallies during the London hours, consistently and this ties in with the increased Brit holdings. A little SOS call from the Treasury to the BOE perhaps.

  77. Winston Munn commented on Jan 9

    Reuters this morning reports:

    “Economic stimuli under consideration by the Bush administration include tax rebates of about $500 for households and tax breaks for businesses, according to The Wall Street Journal.”

    And I always thought the problem of broken records disappeared along with 78 RPMs.

  78. Paul Benequista commented on Jan 9

    I believe we have to look at what they cannot do. They cannot spend more to get out of this; they cannot cut rates substantially lower due to inflation; they cannot bail out housing directly;

    They could as someone said earlier, let market forces determine the future. That seems reasonable given that the Rep. could end up leaving the Demo. with a very very bad situation and wash their hands of it.

    I believe that an engineering solution is not feasible anyways. So that is the best thing to do. Let the cards fall as they must.

  79. Don commented on Jan 9

    Sadly, you can’t borrow your way to prosperity. Not individually, through some negative-amortization Option ARM. Or collectively through much the same thing w/ fed interest rate cuts, inflation and current account deficits. No economic entity, be it the family or the nation, can long survive that borrows more than it produces.

    The gig is soon to be, or is already, up. Bring on the next Great Contraction.

  80. michael schumacher commented on Jan 9

    THe PPT may not exist in the confines of how you describe it but trust me they exist and are VERY active. You do not get rally’s of over 300 pts in the space of 28 minutes without some very serious intervention….only one place in the world has the type of cash available to effect such duty….and I also know how many times our Treasurer goes to China too. The fact is that alot of theories would go away if the meeting minutes would be released, afterall if ya got nothing to hide……

    Don’t kid yourself BR they exist and they are not about to leave an easy trail to discover. But I realize it’s not a very popular stance to take in this business that requires a Harvard MBA and name dropping to get anything that comes close to a rationale reason.


  81. danf commented on Jan 9

    A modest solution to the housing problem.

    You can’t cram down the price of houses because that would break the banks and investors. And it would seriously PO the current homeowners.

    You can’t raise peoples incomes fast enough so they can afford to pay the current prices for homes because the Chinese will work for $10 a day.

    The only thing left to change is the interest rate. Some government entity will issue housing bonds for 30, 40 or even 50 years. The interest rate would be set by the market. It would probably be about 4.5% to 5.5%. The interest may even be tax free. The proceeds will be used to get money to people to buy houses or to refinance the ones they own.

    The monthly payments will be more affordable than they are now. This will get the MEW monster moving again. The bon temps will start to roulee again. Life will be good, for awhile anyway.

  82. JohnR commented on Jan 9

    The major negative influence on the GDP is the much lower U.S. fiscal deficit which is now about 1.5% of the GDP. Three years ago, the deficit was 3-4% of GDP. Increase the deficit by 3% of the GDP–roughly by $400 billion–and the economy will at least get back to its 2004 level.

    According to NYT yesterday, Mark Zandini a business economist found that during the 2000-02 each dollar spent on the Bush tax cuts increased GDP by about $0.70 while each dollar of government spending raised GDP by $1.70. It’s not going to be that different in 2008.

    I favor a major emergency jobs program and expansion of the unemployment program to cover 100% of the unemployed, rather than the 25% who are now covered. Nixon, Ford and Carter administrations had the CETA program that employed 2-4 million people at public, municipal/state projects, paying good wages.

  83. D H commented on Jan 9

    Wow. We are quite the optimistic bunch. LOL.

    I just want to note that a recession will help deflate energy, food, and health care prices because people WILL find ways to cut back on these as well. If people lose jobs, some will either go without health care or lower their payments by selecting higher deductibles. Now that people don’t have $100,000 in their Washington Mutual accounts (courtesy of their friendly mortgage broker), they will reduce road trips and travel (that means plane fuel too). Lastly, at the food level, people are forgoing eating out and starting to eat in. The next step is to substitute the brand names with the cheaper store or generic brands (note today’s news from SVU and Family Dollar).

    All of these actions will help combat inflation. We don’t have to stop buying something to stop inflation. Buying less or cheaper works too.

  84. bold’un commented on Jan 9

    1. Make a big effort to be seen to increase Iraqi oil production. It will take time to get production flowing, but provided enough is done to convince the 3-5 year futures market, then current producers would have an incentive to bring forward sales in 2008 while prices remain high.

    2. Issue ‘import vouchers’ to US exporters who can sell then them in a free market to importers. This is not protectionism but a market tool to counteract currency manipulation by foreign governments. Such a tool to manage the trade deficit supports employment in the USA and enables the domestic savings rate to grow.

  85. John commented on Jan 9

    No PPT? Uh, try again.

    1) Fed/Treasury arranges fat loans to GS & Pals.

    2) GS & Pals use $$$ to “Cramer” the futures, causing the cash markets to skyrocket.

    3) Public comes running to buy the rally, which GS & Pals sell to them.

    4) Loans are rolled over.

    Rinse, repeat, wipe hands on pants.

  86. DavidB commented on Jan 9

    First off, just let the goldbugs win once and for all. At least when you create a bubble in that market we’ll know what to do with the profits(and the word is not reinvest in the same overpriced asset like the i-net and housing clowns did with their bubbles)

    You may as well throw the commodity bulls in the bubble too. We’ll sort this thing out with proper money management

    It’ll be a riot

    Secondly, invade Canada? Have you even been to a hockey game? Canada invented hockey. You sure you want to mess with a nation of hockey players? Even Canadian women play hockey! The first thing a kid does when he is born is one time the placenta into the open net and get the doctor to drop the gloves. Babies aren’t born in Canada, they’re drafted.

    They took away the guns in Canada. You notice they didn’t try to take away the hockey sticks?

  87. Mongo commented on Jan 9

    Nouriel Roubini’s (gasp!) post at RGE, discussing Paulson’s most recent speech and what kinds of ‘intervention’ may be likely from the unindicted crew at Cheney / Bush AG, says it much better than I could.

    And now that all the fiscal stimulus bullets have been spent – in the most reckless and unsustainable tax cut in US history

    [emphasis mine] – the administration is left with very limited room for a fiscal stimulus in bad times (as the hope that Congress will make unsustainable tax cuts permanent is delusional): You need to run surpluses in the fat years to be able to provide temporary fiscal stimulus in bad and lean recessionary years.

    While by passing permanent – rather than temporary – tax cuts during the last recession and thus avoiding a phase out of that fiscal stimulus once the economy recovered we are now stuck in a situation where the room for any meaningful fiscal stimulus – apart from a modest and temporary one like the one proposed by [Former SecTreas] Summers – is gone. And while the modest Summers proposal is sound and sensible it will only reduce the length and the depth of the coming recession; like monetary policy – that is too litte too late and too constrained by other risks – such modest and now only affordable fiscal stimulus – will not prevent the 2008 recession.

    We did indeed waste all our macro policy bullets in 2001-2004 in “the best recovery that money can buy” and we are now left with relatively limited room for monetary and fiscal policy stimulus. This is one of the main reasons why the 2008 recession will be more severe and protracted than the mild 2001 recession.

  88. RichardN commented on Jan 9

    Ahhhh schumacher… I was beginning to think something awful had happened to you that would render you incapable of posting on an open thread regarding the PPT on a reversal day!
    While you’re at it, could you also shed some light on the Plunge Promotion Team at work yesterday towards the close? Could you give us a heads up when they next meet? Thanks!

  89. PTodd commented on Jan 9

    The PPT is simply another name for the Working Group established by Executive Order in 1988 that authorizes them to take any action needed to stabilize the markets, and to report on any such interventions to the President within 15 days. It’s existence is a fact. How often and to what extent they intervene is a secret.

    Frankly, proprietary trading by the international financial institutions that
    own the Fed dwarfs anything and everything. Over 400 trillion in hedge funds/derivatives out there (30 times our GDP and almost 10 times global production) and 97% of US bank held derivatives are held by 5 banks. These are the major players in the markets, investing their own money in proprietary trading, and can easily influence markets outcomes.

    The protections we had against another depression have been dismantled. Glass Steagall Act of 1933, repealed. Sales of Unregistered Securities Restrictions on short selling from 1933? Not being enforced by the SEC. The uptick rule on short sales easily bypassed by offshore trading by hedge funds. Illegal Naked Short Selling, now allowed by the market makers, 10 banks holding 50% of US banking assets.

    In 2008 the concept “Too Big To Fail” will be replaced by “To Big To Bail Out”. As the world economy collapses into depression, so to does America and it’s dollar collapse. The worlds reserve currency will be issued by the World Bank/IMF as the Carbon dollar (and the carbon tax) and the UN will bail out the banks that were too big for the US alone to bail out, and the Amero dollar will be based on a gold standard or some basket of commodities. Mission Accomplished.

    Depressions do not happen by accident, they are intentionally created by private bankers. Our last hope is to dump the Fed and take what happens, otherwise we will be ruled by the UN. But those in power who suggest this tend to meet unpleasant endings.

  90. Contango commented on Jan 9

    Ah yes. The Doomsday Depression Team (DDT) is hard at work pumping excess negativity into the financial markets.

    Now we are seeing the other end of the spectrum….IRRATIONAL BLEAKNESS.

  91. zackattack commented on Jan 9

    Well, I guess we could always kill about 2 billion people and take care of those various “peak” things.

  92. Little Big Bear commented on Jan 10

    Remember the current housing/credit bubble & crisis, recession-to-be, stagflation, deflation, dollar depreciation, etc situation is a (fast) moving target that will accelerate as it “plays out” (as it must).

    Which means there will not be a one “silver bullet” that will be tried on for size. Rather a series of silver bullets will be fired one after the other as the circumstances change from bad to worse to hellish.

    So yes, tax cuts are in the menu, as are all sorts of government handouts and frantic Fed dollar minting binges, oh yes, and the PTT and whatever else Paulson can come up with. Whatever seems to keep the party going will be tried until the last reveler collapses.

  93. Shawn H commented on Jan 10

    “Speaking in 2001 as a correspondent for ABC’s ‘Good Morning America’, George Stephanopoulos revealed that at the time of the Long Term Capital Management crisis in 1998, the Federal Reserve directed large banks to prop up the currency markets.”

    Barry, you don’t believe the PPT exists, even though George Stephanopoulos admitted it?

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