Futures Up Triple Digits on Bailout


And the Nikkei 225 opened up +306.91 that’s plus +2.5% to 12,519.14 as of 9/8 9:15am Tokyo time.


I love the headlines that accompany this: Asian Stocks, U.S. Futures Rally on Fannie, Freddie Takeover   Yeah! We’re all Socialists now!


Here’s your open thread for the night: How much of this bailout was calculated not at "Systemic Risk," but instead at Asset Depreciation, i.e, falling stock prices?

Does tomorrow’s gap up hold? Or, is this like all of the previous weekend rescues — rally, failure, new low? 

The floor is yours . . . What say ye?

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  1. Youngtrader commented on Sep 7

    A problem, I have no f*cking idea. Sitting on SKF, wondering if I’m gonna eat my shorts over the next two months. Sorry for the bad pun.

  2. matt commented on Sep 7

    Nah, just a bunch of punters trying to make a quick buck.

    As you said–rally, failure, new low.

    PS: USD index below 70 by EOY

  3. BobC commented on Sep 7

    What has changed on any fundamental level that would sustain a long term rally? The problem has just been shifted from the left hand to the right. The bad loans still exist. Any capitalization by the treasury will be by printing money, not by actual capital flowing in. The housing market is still in the swamps. What is actually different?

  4. ReturnFreeRisk commented on Sep 7

    Well, they stuck it to us folks who have been right, AGAIN! bravo Ben and Hank! Thanks for killing the people who are right.

    How long will it last? These bailouts (6th one so far according to Steve Liesman at CNBC) have had shorter and shorter rallies. I am guessing 2 weeks. Credit markets will improve. Look for treasuries to keep going down as well. Commodities back to going up. The dollar’s run is most likely over. The inflation trade is back on.

  5. jason in charlotte commented on Sep 7

    I think it is 60/40 asset price vs systemic risk. The systemic risk is a real threat but not one that is on our doorstep now. However that systemic risk provides cover for Paulson to give a grand goosing to Wall Street (via a grand fleecing of the U.S. taxpayer).

    Regarding the market, it is indeed a case of does it gap and fade or does it gap and run. In my opinion it will gap and run, if it opens up 2% then shorts will have no choice but to get massively squeezed.

    **** I think Barry should be required to answer as well. He has previously commented on #1 (asset price/systemic risk), but I don’t think he’s weighed in on what he thinks the market does in response.

    Great coverage over the weekend BR. This has been the one-stop-shop on this story.

  6. RW commented on Sep 7

    It looks like a strong rally shaping up but that’s certainly nothing unusual in a bear market where rallies tend to be stronger than in a bull market anyway. Not being an insider I still have some shorts on that will probably get killed next week but, depending upon how the rally unfolds, I just may use it as an opportunity to add to them rather than cover. I’ll be watching the long T-bond closely.

  7. Popo commented on Sep 7

    Everyone knows that there are still a vast majority of small to midsize banks sitting on mountains of toxic waste. This bailout does nothing for them, and essentially throws them under the bus.

    This bailout will, and must fail. It pretends to be fixing a wider systemic problem when in actuality it saves a very small piece of the problem.

    Suckers will run into the markets this week only to find themselves crushed under the weight of big players stampeding through the exits.

    If you’re a day trader — have fun tomorrow. If you’re a long – be very, very careful. Financials have a long, long way down before we officially “correct”.

  8. In cash commented on Sep 7

    The past week we had a 90 % up day.
    Tomorrow, I think it will be another one.

  9. Owner Earnings commented on Sep 7

    All these bailouts certainly hurt investors on the short side using put options.

    Does the Fed think if they do enough bailouts that the investors on the short side wont have any money to buy put options?

    For anyone short individual stocks this is just a delay.

    Buying SKF Monday.

  10. Mark commented on Sep 7

    Opinion: None of the above. I think this was done at this point in time to placate a certain anti-U.S. contingency of Treasury buyers and FNM/FRE bond buyers (though I repeat myself, now).

    Hint: They speak Chinese, Russian and PIMP.

  11. shayre commented on Sep 7


    I don’t think this upleg is the average investor’s doing. This is just hedge funds playing another game of chicken with other people’s money.

    Everybody wants a thrill
    Payin’ anything to roll the dice,
    Just one more time
    Some will win, some will lose
    Some were born to sing the blues
    Oh the movie never ends
    It goes on and on and on and on…
    Don’t stop believin’
    Hold on to that feelin’


    Never in my life did I think I’d find myself quoting Journey, but stranger things have (and are) happening.

  12. Eric Davis commented on Sep 7

    The manic nature of this board, general points to important sentiment indicator.

    but who knows.

    One of the important, Philosophical questions is “Am I my brother’s Keeper?”. And that question continues to be debated….. But not on Wall Street.

  13. Bob A commented on Sep 7

    whether the rally will last past noon I have no idea.

    but one thing I can say for sure (having seen him just now on CNBC)…I still don’t like Steve Forbes.

  14. Lysander commented on Sep 7

    Does anyone see a new oil rally coming up with a weaker dollar? That might take some of the steam out the rally.

    Great blog, BTW

  15. Mitchn commented on Sep 7

    Housing still not affordable in most markets, U.S. and global economy slowing, unemployment rising, household indebtedness at record levels, corporate earnings heading south, hundreds of billions of crappy paper and toxic derivatives still not properly accounted for, budget deficit soaring, foreign central banks increasingly skeptical of U.S. credit worthiness. Don’t need to be a fortune teller to read the tea leaves: Short, sharp rally, followed by resumption of long, slow grind down to sub-10,000 on Dow.

  16. scorpio commented on Sep 7

    the rally — or some facsimile thereof — lasts until Nov 5

  17. Red Baron commented on Sep 7

    This bailout is a complete joke. As much as the government would like to pump up asset prices, it is only delaying the inevitable and exposing the phony US economy for what it truly is.

    I will be selling into any market strength in the coming days.

  18. icm63 commented on Sep 7


  19. Paul Boughton commented on Sep 7

    High in the SPX should come Oct 1 @1333

  20. JustinTheSkeptic commented on Sep 7

    It will fizzle before it hits our shores…unlike their overseas melt-downs.

  21. John Borchers commented on Sep 7

    Japan market up 2.5%-3%? LOL.

    Clueless funds are buying. The fun continues.

    How does a US bail help japan? It doesn’t.

  22. kelly p commented on Sep 7

    How about Ike? Is there any stock or bond supply pending? HA! Sell second spike/squeeze?

  23. Spooky commented on Sep 7

    I disagree with most here; I think we have already put in the major bottom. This also does have a meaningful change; any ambiguity about what would happen to them is mostly out now. Lastly, govt esentially saying their prior structure was a mistake has to be taken as a serious change; short term harder to get money maybe, longer term positive for the system.

    I would also bet that the asset trade is going to have a serious week to the upside.

    just my .02

  24. cloudy commented on Sep 7

    my guess: lower USD, higher oil, higher gold, lower stocks

  25. matt commented on Sep 7

    Wow! Watch that yield curve flatten.

    I have to confess that, while I think all of this intervention is abominable, it is pretty exciting to watch markets react to these frequent bailouts. I’m too young to have seen gyrations like this before.

    Hanky P should just pull the plug already. Equities are begging to be put out of their misery.

  26. Grant H commented on Sep 7

    Suckers rally-shorts are responsible for the futures pop. Once they sell off and hedgies start hitting the exit button, the rally will be but a brief,fond memory. Remember the negative feedback loop is alive and well..the assets backing all this crap are still DECREASING in value. I have been in cash for 14 months and sleep like a baby. Remember, the same a-holes who got us into the mess are now asking us to trust them to get us out of it. Next week, it will be Bernanke pulling another lever, and again and again and again…all the way down.

  27. Mark commented on Sep 7

    Bail out alert(again,many more to come)
    Money for nothing, chicks for free.
    Print, print, print. Or was it drill, drill, drill. Who cares? Anything to save a greedy banker.

  28. Kid Dynamite commented on Sep 7

    for me it’s very simple: the bailout of FNM/FRE doesn’t solve/end the housing crisis. To remedy the housing crisis, we need demand for houses. Demand for houses was satisfied (vastly OVER-satisfied, in fact) during the housing bubble of the past decade.

    thus, the fact that the American people now own Fannie Mae and Freddie Mac doesn’t help the fact that housing demand is eons behind housing supply.

  29. AGG commented on Sep 7

    I’m with Mark on this one. The market is taking a back seat to China and Japan’s bond investment protection. That said, there’s going to be hellatious volatility this week and it will end below 11,000 for the DOW.
    And by the way, interest rates are going UP this month.

  30. Mac10 commented on Sep 7

    We are now in the 3rd of a 3rd wave down. Surprises to the downside. We are due for at least a small retracement which could last through the morning or even tomorrow. Beyond that, nothing has changed fundamentally, and this event should have been priced in weeks ago.

  31. Nihilism commented on Sep 7

    Boy, these markets are still in the “all-about-us-mafias-financials” frame of mind. They think, If we (crooks/liars: banks and broker-dealers) are saved, world is fine — we can go back to our way of doing business again and start a new ponzi scheme! How pathetic is this collective syncronized market psyche.

    Two large companies in S&P 500 index are worthless and it is good news for the markets and financials!

    Perhaps they can try to hold this thru’ quadruple-WITCH Friday. They have the oil story back in play for a while and that can rally XLE for a while.

    May be GS, MS & LEH results will bring back reality of earnings to fore-front.

    S&P 1065-1150 is a lock (if not 800s) — don’t know before Nov or when bush leaves (1st quarter).

  32. wisedup commented on Sep 7

    Asset deflation is the big one.
    Assets assume that they can be put to good use, investors start to worry that there are no good choices then look out below.

    As for the rally, lets see how the US$/Yen goes today. Could be smart money is fleeing the States for safer currencies. Otherwise, no change in the economic fundamentals so let the gamblers go nuts.
    I assume that with this takeover no bank will be allowed to / will want to issue mortgages.
    Sound principles (i.e. no asset inflation) suggest that sales prices will have fall another 10%, and then general economy factors (jobs/salaries lost) will have to be factored in. The new GSEs will have to eliminate the jam for all real estate players so no great boost to the economy.

  33. rickf commented on Sep 7

    IMHO all this does is save the banks and brokerages who were leveraged into the FRE/FNM mess. And yes, it keeps the GSE’s alive and functional with the USG backing them.

    But the underlying fundamentals of the economy haven’t changed much from last week, so I think we may see a Mon rally but likely sideways-to-down movement as the week goes on…..after all, folks knew “something good” was going to happen this weekend for the GSEs, so it’s not like this was a total surprise.

  34. Vermont Trader commented on Sep 7

    BR – there are new documents up on the treasury site including the warrants.


    I think the market will gap up at the open tomorrow but I have no clue after that.

    I am going to be buying some of the beat up commodity and energy shares and avoiding any positions in the financials for a few days.

  35. Michael G commented on Sep 7

    The gap should be filled back in no time. I will watch the VIX and see if it moves much that might indicate the smart money is not falling for the fake. Does the world really think that one weekend of the biggest “bankruptcy” in US history will fix everything? Nothing has changed! Next FDIC Friday might be WM (who just sacked CEO), no smart investor is going to stick his/her neck out on this. My question is how many other bank’s books look like FNM/FRE? While I am at it, I swear if the goverment allows and funds the “bad side” of the LEH split bank, I am turning in my passport revoking citizenship and moving on out! Don’t forget the $50bil the Detroit brilliance is asking for too!

  36. BG commented on Sep 7

    The thing I am watching for tomorrow is any announcement by small community and regional banks who are privately held that did not have to report the holdings of Preferred and Common shares of Freddie and Frannie.

    If some of these banks were already experiencing difficulty in their own local economies and were holding these shares for their steady dividend and security respectively; then there is going to be a problem.

    From what I have read, the Feds don’t seem to have a good handle on the amount of exposure by small Community and Regional Banks; saying basically, it you drop below the mandatory water-line, call your Primary Regional Federal Reserve or something to that effect. That sounds to me like this is a loose-end not yet assessed in its magnitude.

    I am thinking about the Bull in the China Shop deal. It could be dicey if they discover they have help one part of the banking industry while inadvertently crushing another. Maybe not. We’ll certainly find out soon enough; that’s for sure.

  37. Dig Deeper commented on Sep 7

    If you were watching the markets in AH on Friday, and most weren’t when the Treasury and their henchmen at WSJ broke the story, the ES had run up to about 1262. So from my perspective this is actually only about +12 over that…

  38. Vdsat commented on Sep 7

    I was kicking myself last week for sitting in cash and not shorting. Looks like I get a second chance. It’s hard to say if it will start fading on Monday, but the pop should be over by the end of the week.

  39. Simon commented on Sep 7

    Here’s my 2cents. To make a lower low the latest sell-off would need to go below 1200. To achieve that the market would have to get massively over sold. Looking at the weekly chart the latest sell-off occurred way short of the descending trend line. It needed to get much closer to 1350.

    The bailout is the excuse it needs to complete it’s most recent rally.

    The real question is is there enough good news to see the down trend line broken to the up side. The answer is absolutely not.

    As to what else could happen. Well almost anything.

  40. kelly p commented on Sep 7

    Something does not smell right. Many shorts were covered in last weeks drop? Not a scenario for maximum squeeze. Gap up, fake weakness, quarter point interest rate cut suprise, big sqeeze?

  41. E;vira commented on Sep 7

    It may not solve the crisis but its says “We – the US Gov’t – are truly the buyer of last resort. There will not be a collapse. It also doesn’t appear to “stick it” to the public – not a bad solution.

    History shows that there is always a pivotal moment, after trust is shaken and the crowd is banging on the doors/ or selling their stocks for pennies, when trust is restored.

    It looks like the Asian markets are feeling trust, and people want to have an end – they want to believe in a solution.

    This will keep the markets rolling through Sept. Gold will fly and finally those baby juniors will lift off.

    Yup this is going to turn out just fine.

    Oh … it will slow and drop end of Oct/Nov and we may go sideways for a year, but the bottom is in.

  42. Daniel commented on Sep 7

    it’s just a Dead Cat Bounce.

    The end.

  43. Matt B commented on Sep 7

    Just like last week you sell the market when it is up 200+ points. Strong open that will be lucky to hold on to half the gains by the end of the day. I think you get short the financials on the rally.

  44. Winston Munn commented on Sep 7

    In the longer term, 1-3 months, this is nothing more than the adrenaline surge of the desperate, much like the spike in fervor from a group huddled in a sinking liferaft, surrounded by sharks, when seeing a plane fly overhead – and then realizing that the plane never saw them.

  45. SmallCapPlayer commented on Sep 7

    Elliot wave followers will be short this week, minor wave 3 of 3 finished last Thursday, 4 up will complete countertrend tomorrow. (Think day that was up 250+ and closed down for the day) then acceleration to the downside. Interesting to note the “Conquer the Crash” by Prechter is coming true albeit a few years late.

  46. Wake up commented on Sep 7

    This isn’t about the old MBS, not really. This is about the rest of the banks repackaging (new) MBS to sell to the GSE’s at par. This is the “fix” for the insolvent banking system and represents the “all clear signal” for banks to pile onto the GSE bailout fund. This is a mechanism for loss transfer.

    This is a false-flag operation to re-capitalize an insolvent banking system. Lockhart said specifically that the GSE’s would be able to expand the book with no limitations. What does this mean to you? NO LIMITATIONS TO THE SIZE OF THEIR BOOK. The book will swell like mad until all banks have offloaded the l3 garbage, and then the shadow-inventory will be dumped.

    Rate cut in a week of 50 BPS.

  47. George Nubert commented on Sep 7

    I would agree with the 60/40 asset price vs systemic risk estimate. Too many save the world on a Sunday events only followed CNBC cheerleaders and a slow decay. I don’t think the market is going to stay up. The fact of the matter is that we need to produce our way out of this and that will be hard; consumption and borrowing will not work. The big interests will want to pump up the prices, scale out, but I think this time the little guys got their number. I hope so.

    I am so disgusted at our government, banking and investment banking institutions that I can’t see straight. In today’s world investment banking is an oxymoron. I feel totally abused by Wall Street, the banking system and politicians. They are all lying sacs of **** looking for a fee with no regard for social contribution. These sets of bailouts are socialism, not for the rich, but for the shameless greedy bastards. I wish we could put them all in jail. The system is sick and the whole country is going down with it.

    I am an individual investor that owns two homes that I can afford, never took on too much debt, does not play around with margins, invests rather than speculates, and works hard along with my wife to raise a family. My wealth comes from a business I started 12 years ago and sold last year. Thank heavens I did.

    Luckily I went totally into cash last October because I read your blog along with other “permabears” (realists). Yes you were the cause, and I thank you for saving my ass. Really sincerely, thanks.

    I say get this thing over with fast. I am about sick of these Sunday save the world deals. Let it all go to hell and crash so that the people that really behaved correctly can pick up the pieces and make some money the old fashion way through prudent investment that promotes growth and productivity. The quicker this happens the better off we all are.

    That is the only way to avoid the moral hazard. Let’s rotate to the people who behaved and give them a chance. Let the others crash and burn and start all over again.

    I am one tired pissed off sick tax payer.

  48. Alfred commented on Sep 7

    The excitement is understandable. Futures are pointing higher. We can almost hear the sigh of relieve from markets all around the World. Will it hold or not, who knows?

    Today is the day when the leaders of the richest, wealthiest, most powerful (both economically and militarily) nation on the face of the Earth forfeited its independence. It should be noted that this happened under a radical neoconservative leadership. The right-wing neocons with their policies of “privatizing profits and socializing losses” have capitulated and conceded failure. I wonder when this story, the real true story behind today’s historic bailout, will be told and stirs up the excitement it deserves. With the corrupt MSM and its lies it will take time.

  49. j-daddy commented on Sep 7

    Two years ago, the federal seizure of Freddie and Fannie would have been a sign of the Apocalypse. The futures (up 236 right now) seem to be saying that the market expects the govt is going to set a high price for poopy paper and give all the big financials a free pass to solvency. That feeling, as well as the attendant short squeeze, will last about as long as the all-clear lasted after the super-SIV. Remember that one?

    I’ve been in SKF for a while and will stay put. I might add a little more, but probably not. The only real trade I plan on making is to cash out my FRE puts. If FRE isn’t a penny stock by 9am, then the PPT is working overtime.

    I think the way to play this market all year, given that WE ALL KNEW THIS WAS COMING, has been to go short with a long term investment horizon. All of my puts expire in 2010, because we all know “what” we just aren’t sure “when”.

    Paulson isn’t really trying to stop anything, just slow it down. He knows where this is all headed.

  50. Maj Tom commented on Sep 7

    Gotta love Paulson, since I sold puts on the S&P last week, I am loving this bounce. The buffalo are falling over the cliff and I will be buying back puts and selling calls this week. Maybe a short bounce – could lead higher temporarily, but in the end – it won’t matter. Profits are the mother’s milk and the October surprise will be more negative earnings.

    We haven’t hit the S&P number of 1126 or 28% average downturn like a “normal” recession. Bad recessions are 40+ percent peak to trough, shallow ones are around 18%… Anyone really think this will be a shallow one? Negative savings, tighter credit, weak job recovery, higher taxes (when Obama gets in), C’mon – this downturn is going to be longer and deeper than either administration desires.

  51. Danny Ocean tweeted on Sep 7

    I have begun looking at everything the Federal Government of the USA does through the eyes of partisan politicians in the midst of a heated election race.

    The bailout of FHM/FRE could be a cynical last ditch attempt to pre-empt an ugly September in the equities markets.

    If there is a Black Friday type event in October, expect the bombs to start dropping over Tehran!

  52. Vermont Trader commented on Sep 7

    A few things I noticed in new warrant and preferred purchase agreements…

    Strike on the warrants is $0.00001.

    No word on what the amount of the first capital infusion will be and when it will happen and when it will be announced. This will be a major data release going forward.

    It appears on first read of preferred stock agreement that there is no minimum capital requirement going forward. The govt will just fill the hole every quarter.

    The beat goes on..

  53. SteveC commented on Sep 7

    I would like to short the open tomorrow. That should tell you my opinion.

  54. Amateur commented on Sep 7

    this intervention is abominable?
    Not at all.
    Fannie and Freddie were “abominable”, this is just getting out of the closet.

    Government support to reduce cost of mortgage rates, within reason, is a positive policy.
    Better do it in the open.

  55. Eric commented on Sep 7

    You want predictions for the week? Cramer will say, “See, I told you it was the bottom. I’m right again!!!”

  56. JDB commented on Sep 7

    I think we will have a wonderful opportunity to short the market in the next few days. I am just unsure how high this rally will go before it turns back down.

    I am just wondering how much ammo the government has left with all of these bailouts. I know that Bernacke joked that he always has the printing press, but isn’t that what we have to use to get out of this without a serious recession in the short term? Nobody in government is willing to be responsible for a sharp, but quicker, recession to let the market take care of the credit crisis. Instead we will just inflate our way out of this. We actually need inflation to make home prices and bank balance sheets stabilize. That is precisely what we will get. Gold anyone?

    For all of you fans of private property, who is now first in line for the majority of residences if they default? That’s right. The U.S. Government. Great Nancy Pelosi and Harry Reid could possibly have a claim on my biggest asset, not just my income. We are truly on “The Road to Serfdom”.

  57. John Borchers commented on Sep 7

    Somthing quite bad is happening here. The shorts are getting squeezed in Asia but it won’t last long.

    Look at long term charts on Japan, korea, etc. etc.

    Notice how even the stock markets look like they were bubbled.

  58. Andrew 755 commented on Sep 7

    The fed controls the market…. not the people:) The fed wants the market to go up… so everytime they do this nonsense when it falls. When better to announce a rumour….. Friday afternoon…Why announce on Sunday afternoon.

    Kick these clowns out of office…. Socialism rules apparently!

  59. Rob P commented on Sep 7

    Now honestly who didn’t see this Sunday Bowl coming? After Thursday and hitting 20% down, you KNEW Ben & Co were going to be up to their F’N tricks again! Plus the 11th bank failure and it’s more in the commercial arena than residential. When is this BS going to stop???? I’m just lucky my shorts covered in about the last 20 minutes on Friday, else I’d be waking up (if I slept at all) mega-pissed!

  60. kelly p commented on Sep 7

    Please stop calling the present administration conservative. During the 00 campaign, they promised to run a lean government, and to avoid foreign entanglements. Turns out that greedy corporate cronies took over from the classic conservatives that supported them. Let’s just write about this desperate bounce?

  61. cdrueallen commented on Sep 7

    Yes, the markets will go up for awhile in a rush of optimism. But I think there are big problems for the U.S. Treasury ahead. I’m thinking of that chart from business week –
    that shows the accelerated recast schedule of option ARMS. The dollar amount recast is equal to or greater than the subprime resets in 2006-2007. The difference is that these recasts will raise monthly payments by a much greater amount on homes that are probably already underwater. Leading to a much higher foreclosure rate. Don’t see how this can be good news over the next two years for the markets, the dollar, or the U.S. taxpayer.

  62. Amateur commented on Sep 7

    Asset backing, 90%.
    And it will be successful, if a Central Bank is willing to print the money it has no limits, can put a floor on any prices.

    Mortgages will stay mostly current, as a cheap supply of new credit will not let houses fall much more than they already have.
    Banks are saved (from this one) Most of them, even is a few smalish fail.

    But equities have not a future anytime soon,
    This asset-support party ends in inflation, and then, in higher real rates that will depress equities.

  63. Trader Greg commented on Sep 7

    Since Stock Market loves it, let’s nationalize entire banking industry.

    There are still some Stalinist CEOs somewhere in Russia…..we should start hiring them.

    Seriously – some idiots need to loose serious money. Cramer will call another bottom, the morons will invest in the banking stocks, and the charts will turn south – within a week.

  64. Periwinkle commented on Sep 7

    What about the credit default swaps? Who are the big winners and losers?

  65. Bob Markman commented on Sep 7

    Of course the comments here are from a self selectd universe, and given BR’s pessimistic–and correct–view of these matters, those who are ‘optimistic’ probably left long ago. But one might think that the overwhelming negativity in this comment thread(no judgment, just stating a fact)might cause one to consider taking the other side of the trade–at least for the short term….

  66. Steve Barry commented on Sep 7

    Troubled financials will take this opportunity to try and slip news by without getting hurt too much due to general stupidity of the market. For example WaMu looks like they just fired their CEO and Lehman doing a shake-up, but nobody cares with Dow futtures up 260. Rally lasts 7 hours of US trading or less.

  67. Andrew 755 commented on Sep 7

    Taking the other side of the trade… I trade long and short. But lately… it seems that the market has been tampered with. This is the latest example. Capitalism anyone? Nope this is greedy self interests running over longs and shorts….i’m getting whiplash.

  68. sanjosie commented on Sep 7

    Does the calling of Treasury Secretary Paulson’s bluff (bazooka finance!) bode well for the future? No.

    A receivership that does not fairly distribute responsibility amongst all sources of capital for the insolvent entity is good for capital markets? No.

    The failure of Phoney and Fraudy is stage managed to protect debt holders by having the US taxpayer hold the bag for losses – this can only lead to deterioration of the credit rating of the US Government.

    This shoe does not drop alone. Declines in in economic activity lead to shortfalls in tax revenue. Given that GSE losses now fall directly to the US Gov’t Deficit, the path out of this economic malaise becomes a tortured path that turns back upon itself in a negative dynamic feedback loop.

    The Treasury says Phoney and Fraudy will grow their business (unheard of in insolvency!!!!!!!) to shore up US housing.

    The answer to industry dislocation driven by government interference distortion is more of the same. It is the hair of the dog that bit you, a drunken orgy that proposes more drunkeness to cure the chemical dependency. The lunatics are in charge of the asylum!!!

    Stocks go to zero in. Preserve your capital.

  69. D.L. commented on Sep 7

    JDB @ 10:13:54 PM

    “I think we will have a wonderful opportunity to short the market in the next few days. I am just unsure how high this rally will go before it turns back down”

    My sentiment as well. If the XLF can get to $23 by Tuesday, it’s a short. If it can get to $24 by Wednesday, it’s a screaming short.

  70. touche commented on Sep 7

    Massive treasury borrowing in the near future, not just to buy MBS, but also to fund a rapidly rising deficit. Disaster coming.

  71. larster commented on Sep 7

    Just got back from a Sun gathering of five couples (4 Dems and one r) and I mentioned the socialization of fannie and Freddi. Everyone looked at me like I was talking about the theory of relativity. People do not have a clue, folks and this is very dangerous.

  72. schnauser commented on Sep 7

    I am surprised that no one has mentioned the “buy the rumor, sell the news” trade. This event has been telegraphed for weeks, so it would certainly make sense if after a day or two of excitement it reverses hard.

    icm63, I am stupid, if the bond market rallies, doesn’t that reflect a run to safety, a deflationary, negative situation for equities whose earnings are going down? if the bond market collapses, doesn’t that reflect the end of Bretton Woods II, the foreign prop of our massive debt, high long term rates that homebuyers can’t afford, and possible doom for the US dollar? so, where, exactly is the bond market going to lead us? but please remember, I am stupid, so please explain it clearly to me.

  73. JustinTheSkeptic commented on Sep 7

    good night to all…and to all a good night…party on Saint Nick! And is there a Saint Hank, and Saint Bernanke, ah! and of course their altra-Saint Greenspan! Thank God for that wonderful Land called Oz…(not that anyone else could do any better, but……….?).

  74. MarkTX commented on Sep 7

    Current Futures @ 10 PM CST

    S&P 500 +34.20 1275.30

    NASDAQ +40.50 1810.50

    Dow Jones +251.00 11478.00

    what is the largest Futures ramp job ever recorded for the US???

    The bigger the bailout-the bigger the ramp?

    Larster hit the nail on the head, I cannot
    find many who have a clue what F & F are,
    but when I mention what they are and about the bailout pretty much all do not give a F@#K.

  75. paul commented on Sep 7

    Only when the TED spread returns to normal and the high yield bond market rallies will the credit crisis be over. Any stock rally not accompanied by the above is false.

    Just a thought: we had better rally tomorrow. If not, especially if 9/8 turns into 9/2, then I think we crash.

  76. Vic commented on Sep 7

    Don’t know how high markets will go, but intermediate bull that starts tomorrow will run into election. Bailout action created positive psychology toward possible rebound in housing and it would take some time to dispel it. I am guessing that it should take 2 to 3 month. If market hesitates before election FED will prop it again.
    Terrible bank earning reports and even failures will be yesterday news. The worse the report the more market will rally

    Now I’d like to add that if anybody thinks that any other administration (left or right) would do anything differently they are deadly wrong. When there is a question whether to save some Joe’s with idealistic ideas or major contributors with money, who is going to win?

  77. MarkTX commented on Sep 7

    Is this what “Trading” is going to look like in the future???


    500+ point opening gap down

    next day

    800+ point opening gap up

  78. Keith commented on Sep 7

    All Ords currently up 3.2% (was up 4%) this morning. Hooray for for Paulson – he has saved the world.

  79. lala commented on Sep 7

    How is this going to make anything better?
    Granted the market opens up 300 pts tomorrow.
    But how in the world could the bottome have been put in.
    Delinquecies and foreclosures are increasing. Unemployment is increasing. Saving rates are getting worse. And most households are carrying $10,000 in credit card debt.
    The market from 2003 – 2007 was built on loose montery policy and asset inflation (see how well that worked out for argentina). People took money out of houses they didn’t own (but were increasing in value) to buy things (mostly depreciating assets) on credit.

    The point is the economy is moving to the downside as the credit crisis continues to accelerate. I am not talking my book (which is 95% flat for the last 2 weeks) but talking fact.

    At the end of the day the consumer will have cheaper mortgages available but it DOESN’t matter because none of them have saved the 20% to buy $100,000 house.
    And the government will have taken on billions in new debt.

    As far as confidence in the markets – who the heck believes anything these IB’s are telling us. Looking under the hood of freddie and frannie and realizing that they were under capitalized and that past dues were not being recorded as such until they were 2 YEARS past due (up until last quarter it had been 90 days).

    Good luck tomorrow. But IMO the only thing this signals is that this is the end of the begining. The real carange is going to take place in the middle when there are no more bailouts and interest rates cannot go any lower.

  80. la grande poussee commented on Sep 7

    La Grande Poussee (the big push)

    There is a market before the pre-market – they set up the “head fakes’ and the “Gaps”
    then the pre-market opens at 8am – the rollers and gamblers – take what they see and go with it…at 9:25 the pre-market closes and there is 5 minutes of trading going on that adjusts and squeezes and tries a trend set up – and then the market opens at 9:30 and by 10:00 the gap up may be over – a good time to watch and not trade – unless you can get the top of the gap up and watch the volume – it will tell!

    Good time to keep your hands busy – another cup of coffee and a scone….

    GAP UP BIG then? could be the biggest blow-hard shortest “squeeze” then the computers jump in and take over the shorts.
    1300 on the S & P maybe

  81. JSG commented on Sep 7

    I quote Jim Morrison…

    This is the end
    Beautiful friend
    This is the end
    My only friend, the end

    It hurts to set you free
    But you’ll never follow me
    The end of laughter and soft lies
    The end of nights we tried to die

    This is the end

  82. Steve Barry commented on Sep 8

    The term “credit crisis” as most call it does not do it justice. The use of credit was so out of line with prudency, that nothing short of a new economic regime will herald the true bottom. This gyration is pure noise. Money managers are buying into it, for what do they have to lose? For more and more, if the situation worsens much, they’ll be out of business anyway. So why not risk client money that maybe this will be the bottom? If I were them I would. But I’m not, so I’m going full steam ahead to the $99,000 answer.

  83. Vic commented on Sep 8

    To Keith question – How is this going to make anything better?

    You correctly pointed all the problems that economy is facing right now, but these are yesterday news. The slogan for tomorrow will be – How cares. Give them a chance. Markets are discounting mechanizm and looking into the future. Standard BS

  84. Doc commented on Sep 8

    Just doin’ what bear markets do… HIGH volitility, taking money from longs and shorts. The MACRO: baby boomers all chasing the same pie. DOW ratchets down to 8700, then goes to 3000 like crap through a goose.

  85. donna commented on Sep 8

    Hubby was fretting paying the mortgage tonight since we’ve just spent a ton of money sending eldest child out of state since Arnie has made going to a UC school in California impossible for a transfer student. Although actually it didn’t end up costing that much more…

    Anyway, I just said, “Why bother, nobody else is paying theirs, and the government is bailing everyone out anyway.”

    Yeah, my level of cynicism and my disgust over having bothered to save out money and not buy way more house than we could afford is getting to me lately.

    I am so sick of this country.

  86. gg commented on Sep 8

    well whilst I don’t like how its been done, it does remove an ‘uncertainty’ and remember investors hate uncertainty.

    We know all the bad things but here’s a piece of ‘perceived’ good news.

    So the counts on the positives:

    – oil has retreted
    – fundy & phony won’t fail
    – the govt or fed will rescue big banks
    – election spin

    The rally may last longer than one day, people (read: investors) are desperate for positive spin.

    What other ‘bad’ news can come?

    we know about most of them…housing, unemployment, inflation…

    Why then is the Shanghai going backwards?

    decouple? hmmm

  87. chris commented on Sep 8

    What would happen if the banking/mortgage system collapsed ? It is not the proper thing to do with the takeover of fred and fanny but what else is going to stop the risk of an all out meltdown ? It would be nice if they the (fed. and tres.) would start showing the public that they are going to punish where it hurts($) whoever put us in this mess. Start taking homes and bonus of the financial people who profited from this mess.Retroactive.

  88. Jason G. commented on Sep 8

    I have to wonder if the hacks in the treasury aren’t playing a political card? Keep things afloat long enough to blame it on the other guy/party.

    I would wonder if the current bailout is enough to “keep things afloat”, but it wouldn’t be too surprising for the ball to keep bouncing until November… at which time the lame duck will give the go-ahead to let things fall, and then the cliche about the market falling during donkey years will be a self-fulfilling prophecy.

    I for one think this thing stinks, and the economy will eventually pay for it. Of course, it might be 20+ years before the seeds we sew today get harvested in a lower long term GDP growth…

  89. nato commented on Sep 8

    Things are so obviously engineered – bank failure Fridays, everything major happens on the weekend.

    It wouldn’t surprise me if the powers that be are ‘engineering’ intense futures buying in order to convince the market this bailout is a great thing. Who really believes this will save the economy? Because that is what markets are about, are they not?

    This gaming reminds me of everything I’ve read of the 30’s. The rules are for the regular Joe’s, but the uber rich and powerful do what they will and manipulate securities at their whim.

    If this keeps up it make scare another generation into avoiding equities. We’ll be the grandparents telling our kids about the dirty 2000’s.

  90. Olivier Giovannoni commented on Sep 8

    oh the future is too uncertain. But I think it’s good to see the US markets surrender to the required policies. This event would not have happened in Europe.
    I bet the situation will gradually improve from now on. Some uncertainty until the elections and a little past that if Obama is elected. The only thing in the way may be some bank failure –but then again Uncle Sam will come to the rescue.
    … And as for socialism, I think the US has been a socialist country since at least Reagan, minus the socialist redistribution mantra.

  91. KnotRP commented on Sep 8

    So the US home buyer, who couldn’t afford the mortgage loan, will somehow be able to afford the taxes necessary to make that same loan whole again? I wonder if they can devalue the currency fast enough to break the currency pegs but not crater the dollar….

  92. Dark Keep commented on Sep 8

    Hopefully BP and persistence of WWW-memory will remind us next time. The dotcon.bom was mass hysteria, and 911/WTC was mass distraction (with destruction of IRS/SEC records of the DCB), but this time, the, creditcon.bom? There was no excuse for no oversight, for Great Pyramid of Ponzi, for not bearing arms, pitchforks and torches, burning Wall Street to the cobblestones. We bent over and took it. Now everyone who was sober during dotcon.bom, and prudent during creditcon.bom, gets *stuffed* by the same socialists who pushed through the Fed in 1913 and swindled unconstitutional personal income tax. Guessing everything happens in two, as Greenspan said, “Every once in a century this kind of stuff, you know, just happens! Everyone was working hard with the best of fiducial intentions. It’s just one of those things, nobody is guilty, now, go back to sleep, citizens. Remember, you have to wage-slave tomorrow for the Great United Soviet of America!”

  93. Levin Coleman commented on Sep 8

    Whatever happened to National IRS tax lien registry? http://www.govtrack.us/congress/billtext.xpd?bill=s110-1124

    Does Treasury and their friends as GS have access to some Fed tax lien database, the rest of US have to FOIA to get ahold of?

    Isn’t there a national construction lien registry? Once construction really halts, as the last few properties and loans are built out, and wave of construction liens following peaks and freezes, wouldn’t that construction lien apogee, along with the IRS tax lien apogee, lay in a strong bottom in the equities markets?

    Sure, everything might go sideways for 17 years, but as the liens are satisfied, as the bankruptcies auctioned, radioactive waste cleared away and monetized into T-bonds, wouldn’t knowing that national lien data give whomever has access to it a sizeable insider advantage over Joe Retail, for capturing the fertile bottomlands and planting a P/E 7 flag?

  94. jz commented on Sep 8

    It is amazing how many people have missed why the market has rallied. Right now, spreads are about 2% higher on mortgage debt than t bills. They should be even now that both have the full faith of the goverment behind them.

    Unlike t bills though where the government pays out money, they get money with mortgage debt. So that debt is much like a bank loan, which is an asset.

    So what happens to the value of a bond selling for $100 that yields 6% if its yield drops to 4%? The value goes to $150, a 50% increase.

    If the value of the Fannie and Freddie debt goes up by 50%, the U.S. could see a huge increase in value of said mortgages from asset appreciation. I previously wrote how I thought losses amounted to only $30 billion. That number may pale in comparison to the gains we will see.

    In addition, Fannie and Freddie were cash making machines prior to the last few years. Their gains were private, and their losses were public. Now, their gains are public as they should have been all along.

    This “bailout” is anything but. It is more like theft. Anyone holding Fannie and Freddie mortgage debt is going to make out like a bandit.

  95. Lysander commented on Sep 8


    I guess what you say is true except…what is the value of a bond if the borrower isn’t going to pay? That is the case for much of F/F debt. The ultimate holder of the bad debt has changed from banks to the U.S. government, which is great for banks. But the debt is still bad.

  96. BILL commented on Sep 8

    Maybe won’t fizzle – this manipulated rally. But I know I don’t want to be in it . Trust these guys as far as I can throw em . Its no fun and not even amusing to play in this market of “setup” volatility by the big players . Bill

  97. Kent commented on Sep 8

    Lotta interesting points, here.

    All I see is that we’re likely to make a higher low on both the Dow and S&P, provided we don’t actually go down for the day. (In America, all things are possible).

    So the short term direction looks like it’ll probably be up. Given the macro picture ain’t getting much prettier, what with the Alt-A resets coming, I’m not a buy and holder of all this enthusiasm.


  98. Ritchie commented on Sep 8

    I took all the words in the comments above and ran them through Wordle thinking I could discern some advice about how to invest tomorrow. This is the first Wordle I’ve seen with the words at all sorts of crazy angles. The words have been horizontal or vertical in the others.

  99. RW commented on Sep 8

    you said all that was needed to be said in your post:

    rally, failure, new low

    no other way for it to play out

  100. wisedup commented on Sep 8

    Any one know how the share values,ordinary and preferred, are going to be determined? Trading will halted? The dividend appears to have vanished but as for the rest?

  101. Jim Hancock commented on Sep 8

    Paulson is accomplishing two things:

    1) Using a $200B infusion of taxpayer money to keep FRE/FNM payments to the Chinese/Japanese current.

    2) Kicking the can can down the street for the next administration to deal with.

    Will the markets rally? Yeah …Paulson just transferred $200,000,000,000.00 from the US taxpayers to a public company …without f*cking the shareholders to zero.

    And yes, we do what you said: rally, failure, new low.

    But when? I am holding my 2*shorts …the only question is when do we hit the new low (when I can sell)?

    Do we hit the next major bottom in 2 days, 2 weeks, 2 months or 2 quarters?? I could make a case for any of these choices (unfortunately).

  102. Michael Panzner commented on Sep 8

    One of Many Scams

    The trouble with the world is that the stupid are cocksure and the intelligent are full of doubt.

    Regardless, since most of the financial blogosphere is already providing blanket coverage of the fraud being perpretated on taxpayers by the Wall Street-Washington nexus, I thought it would be interesting to highlight a few of the other scams our “leadership” is currently involved with (which stock market investors, of course, blindly accept as the unvarnished truth).

    Below is a Financial Times commentary by Rob Arnott, chairman of Research Affiliates, “Government Lies and Squishy Ethics,” that gives it straight.

    “There are three kinds of lies: lies, damned lies, and statistics.” Benjamin Disraeli, later popularised by Mark Twain.

    Let’s drill down to examine three sets of government-issued lies, or should I say statistics, that shape our perceptions of the economy, and hence our investment opportunity set: “off balance sheet” (OBS) spending, deceptions in the inflation statistics and the pretence that we’re perhaps avoiding a recession.

    What’s the expected US fiscal deficit in the coming year? $500bn (£283bn, €350bn)? Guess again. With the accrual of future obligations for Social Security, Medicare and Medicaid, and with the cost of the war in Iraq and Afghanistan – all of which are off balance sheet – the true deficit is roughly $1,000bn.

  103. jessica commented on Sep 8

    I see this as a more fundamental step than other commenters.
    It is now locked-in policy that saving central banks and US financial institutions takes complete priority over the US economy itself and 98% of the US population.
    Long term, this is a very major blow to the United States as a global power. The US financial elite has positioned itself to jettison the United States and find a new position at the head of the emerging global financial aristocracy. (It hopes.) Just as so many Roman Senators jettisoned the Roman Empire and hopped over to become bishops of the church. Or Soviet managers jettisoned the Soviet Union to become oligarchs.
    Short term, the benefits, some completely undeserved, to the big financial players at home and abroad, are so large that they may raise markets farther and longer than expected. Much of the real costs will be years in showing up. For example, as education and physical infrastructure is defunded in order to pay for all this.
    All the more so if the Fannies are used to hoover up toxic securities from other large players and make them whole (at the expense of the US population).
    As a nation*, we are not capable of even considering any other path. The reaction of all the mainstream media and both presidential campaigns proves this. So real options will only come on the table when the situation becomes more obvious, and more dire. 5-10 years is my guess.

    *Many individuals and groups, such as Barry and the commenters here are perfectly capable. But those who benefit from this have such a lock hold on the mass media, political leadership, etc. that no alternative path can even be acknowledged to exist anywhere with proximity to the levers of power.

  104. Jim Haygood commented on Sep 8

    From Hank Paulson’s statement on Sunday:

    “GIVEN THE CONDITION OF FINANCIAL MARKETS TODAY, I concluded that it would not have been in the best interest of the taxpayers for Treasury to simply make an equity investment in these enterprises in their current form.”

    Could it be any more obvious? We live in a Greenspandian world in which it’s not even possible to identify — much less take action against — a Bubble (according to the ‘authorities’).

    We have satellites to see Cat. 5 hurricanes in the Caribbean. But when it comes to spotting 5-sigma parabolic financial Bubbles, we’re loinclothed tribesmen watching the sky for clues. So says goofball Magoo, and his protege Helo Ben.

    When Bubbled markets start to crash, though, the heavy artillery of public money has to be fired into them until they stop falling.

    Ultimately, the government can and will make the ‘markets’ go up. They will do this by inflation. If the dollar loses another 90% of its value, then house prices will be roughly 10 times higher than today. YAY! We’re all housing millionaires now.

    The question of the day will become: if you’re such a multimillionaire … why ain’t ya rich? Ask any Zimbabwean!

  105. mephisto commented on Sep 8

    Anybody notice that every market in the world is UP 2-3% except for Shanghai…which was down 2.6%??

    And there are no shorts on the Shang…but there are shorts everywhere else where things are up 2-3%. I guess I am trying to say…

  106. xon commented on Sep 8

    Something has been buzzing in my head about Paulson’s statement about how that we better do it this way or there were going to be worse consequences if we didn’t. Some connection or memory or something. Then it occurred to me: there’s another situation, not all that common, fraught with stress and potential consequences where you hear the same rational choice presented to you by the same sort of people:

    “Yer money or your life!”

  107. Mace commented on Sep 8

    Hey Barry…Good show. Best Fan/Fre coverage on the web.

    My grandad worked for $1.00 per day during the Depression in Miss. He was underpaid. It should have been $1.50 per day or about $30 bucks a month.

    One gold coin, 1oz, at the time would cover it.

    Today it would take two to three American Eagles, 1 oz, to attract the laborer. Gold is undervalued by 50%.

    BTW. Was it here we attributed some market drops to Barry O’s poll lead? Today do we have an F/F bounce AND a Sarah Palin bounce? You go girl.

  108. Mark E Hoffer commented on Sep 8

    The term “credit crisis” as most call it does not do it justice. The use of credit was so out of line with prudency, that nothing short of a new economic regime will herald the true bottom. This gyration is pure noise. Money managers are buying into it, for what do they have to lose? For more and more, if the situation worsens much, they’ll be out of business anyway. So why not risk client money that maybe this will be the bottom? If I were them I would. But I’m not, so I’m going full steam ahead to the $99,000 answer.

    Posted by: Steve Barry | Sep 8, 2008 12:12:57 AM

    and people ‘think’ that it is only ‘Arab Fundamentalists’ or ‘Tibetan Monks’ that are into Self-Immolation, rather than 401k participants and bank account holders..the power of media..

    “The press is so powerful in its image-making role, it can make a criminal look like he’s the victim and make the victim look like he’s the criminal. This is the press, an irresponsible press.” . . . . “If you aren’t careful, the newspapers will have you hating the people who are being oppressed and loving the people who are doing the oppressing.” — Malcolm X


  109. John(2) commented on Sep 8

    We all knew we were going to see a bit of a rally on this, duh, and the evidence is already in from Asia and Europe. The question is can it be sustained. Probably not because the fundamentals haven’t changed but a lot of folks here are ignoring the nature of financial crises. Sure there’s lots of toxic crap out there but clearly Paulson and Bernanke are going to keep plugging the holes in the dike until we get through this. There’s downside to the main markets after this rally but I’m coming to the conclusion a full meltdown which some here can’t seem to wait to see happen isn’t in fact going to happen. The great deleveraging is going to go on, asset devaluation will continue, housing prices aren’t going to bottom for another six months, consumer spending will stay in the tank for another year, but the world is not going to end.

  110. John(2) commented on Sep 8

    Posted by: jessica | Sep 8, 2008 5:57:04 AM

    I hesitated to reply to this but with due respect it’s total bs. We don’t know what all the consequences of this action will be but we do know what the consequences of not doing this would have been. I note that even the economically literate commenters here most upset about the violence to the taxpayer and various other matters don’t actually say they shouldn’t have been bailed out. Get over it, it was a prudent and sensible move.

  111. Mark E Hoffer commented on Sep 8


    your maladroit agitprop was predictable from miles away..

    presages the implied threat: more Gov;’t Debt and spending or no more ‘Personal’ credit.

    Posted by: Mark E Hoffer | Jul 20, 2008 2:04:36 PM

    hopefully you’re being paid in Silver, I’m sure you’re handlers aren’t dumb enough to think you’re worth Gold.

    say “Hi!~” to the boys at PIM(P)CO for us..

  112. tranchefoot commented on Sep 8

    Some of you have forgotten that the July “bottom” was established with Merrill’s sale of super senior tranches at $.06 on the dollar! This bailout is huge in comparison- I say we rally until the election.

  113. jcwolfe commented on Sep 8

    So where are the bulls?
    Looks like the bears took this as an op to reload on the shorts.

  114. Fred S. commented on Sep 8

    Deflation is the primary concern, they need to re-inflate quickly. I see the following unfolding. OPEC keeps oil production steady, Congress either passes new energy legislation or lets the off-shore drilling moratorium lapse, Oil drops below 100, Fed will ease at next meeting due to downside risks to growth.

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