Monday, September 29, 2008

Politics wins

Would you adam and eve it, turkeys vote for Christmas 228 to 205? There will be another attempt tomorrow to hammer out some new ideas, but nothing on the floor of Congress before our teatime on Thursday - Congress is adjourned. The debaters in the House of Representatives had fair value warnings of the abyss
Nasdaq down 9%, Dow down 7% (biggest one day drop), S&P 500 down 7%. Wachovia (down 90% overnight) and other banks are now teetering. Treasury yields down and interbank liquidity lending rates remain very dry. Central banks led by the US Fed are tripling money market liquidity windows. Citigroup shares fell, and shares of financial stocks traded lower. Morgan Stanley fell 11 percent and Goldman Sachs was off 8% and ticking down. European stocks, already 3% down at the New York open, fell more after the falls on Wall Street. London and Paris down over 5 %, Frankfurt -4%, Asia, Hong Kong ditoo.
Slides are bound to continue tomorrow, maybe all week; could a 40% fall to long term p/e rates in the US and 25% in Europe be far off? Maybe the House Republicans didn't realise they could defeat the bill, wanting only to lay down a strong protest marker. We'll find out from TARP's media autopsy. It will be unusual if various alternatives, PLan Bs, do not get an airing. After all, half of US households have stock investments.
Willem Buiter says in the FT Those whom the gods would destroy, they first make mad "Opposition to the proposal came from two different sources. A few remaining libertarians and believers in unfettered free enterprise voted against. Even when they recognise the risk that a calamitous collapse in economic activity may result, they view this as a form of creative destruction that is an integral part of a Darwinian market economy. I don’t know anything about Gresham Barrett, a Republican congressman from South Carolina but his statement fits the bill: “My fear is the government will be forever changing the face of the American free market. Because I believe so strongly in the principles of the free market and the belief in freedom, I will be opposing this bill.” Those who genuinely hold these views are mad, but honest and principled. I wish them a good depression."

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