Market Veteran: Why the Bailout Will Work

Fellow responsdents, I understand that it is much easier to favor an optimistic perspective of how the recent bailout package will leverage a comeback for our current economic woes and the bottoming of the equities market. The current credit crisis and economic circumstances did not take place overnight and will not be resolved overnight with a magic bailout pill. Please consider that we are just about to enter the current earnings reporting cycle and BofA (BAC) just announced last night after market closed that earnings were off 2/3's YOY for the 3rd quarter. This is just the beginning of the rosy picture you are going to hear about over the next 6 weeks. Not exactly the kind of news the VIX likes to hear. Jeff fails to mention, nor, quantify any measurment of how much he feels the VIX is inflated by the restriction of shorting the financials has created. He also fails to mention that VIX has broken through an important resistance level recently which suggests further fear and downside is on the way. This week is the first of many weeks you are going to begin hearing about how our toxic credit virus is speading across the pond to EU and Asia and it's impact on their credit markets and further erosion of their equity markets. Probably the most important of all facts that will continue to erode the economy and domestic equities markets is that the impact of all this money being printed and dumped into the global currency arena continues to undermine the strength of the dollar and place further pressure on inflation while the FED is being pressured to lower interest rates. This fact combined with what will likely be a very long cycle of the price of homes coming out of their current trend downward will impact for at least 18 to 24 months the ability of all of this toxic paper to be repurchased and it's further impact on unemployment and GDP. Although it may sound like I am "Chicken Little" and I'm telling you that the sky is falling. Please remember "the sky is falling" and the DOW will probably go to it's mid'90's level of 8500 to 7500. That means, without a substantial accelerator to fire our economy, it will likely take the economy a minimum of 10 years to comeback. Does anyone remember the crash of 1929 and the ensuing Depression that took until 1939 to comeback and that is only because we got into WWII. It will probably take another war to pull us out of this mess. History does always seem to repeat itself. Chicken Little

This is my vision: The underlying cause of the financial crisis is the fact Americans were spending too much and this was supported by financial institutions. By now, I suppose we (i.e. the financial institutions) have learned from this I suppose so credit will be much tighter from now on. This will mean consumer spending will decrease significantly but it will also restore the health of the American economy in the long run, the crisis will not last forever (though it might be a year or 2 or so) but it also means a recession is looming for the U.S. and possibly countries for who the U.S. is an important export market. The danger of the bail out package is banks might be seduced to start lending too much again and then, the underlying cause would remain and the crisis would take longer to resolve.

vix= fear index. The higher the level the greater the fear and vice versa. It tracks option action. When it is high, look for a bottom in the market...the fear is in and close to done (undo pessimism) start looking at long plays. When it is low, there is no fear (irrational exuberance) and you should consider reducing exposure and possibly going short. Hope that helps. GLTY

As a twisted solution to our nation's debt problem, why not just float out as much as we can to foreign buyer's and then do the truly American thing....declare bankruptcy and tell other nations we just won't be paying our bills....we need a fresh start. Reality check, what are or can they really do about it....we are the 900lb Gorilla right now, so maybe we should take advantage of our lone Superpower status?

If we need to take the country back from the ultra wealthy - than forget the elections. The ultra wealthy are backing Obama - he didn't raise his millions from the poor and downtrodden! Think George Soros of moveon that according to Seeking Alpha made 2.8 billion last year - think of all the Hollywood Elite (who lack brains but not wealth) and Franklin Raines who ran Fannie to the ground but made millions doing it and now advises Obama - just to name a few. We won't get change in Nov. just the same poop with a different face and collar - all propaganda!

Yes, eventually it will trickle down to "We the People" after ALL the rich get paid again.

He, sensey. We can't all be perfect like you.

And nobody forced the banks to offer NINJA loans. I'd prefer to screw the banks, you'd prefer to screw your neighbor. Thanks for the clarity, maybe you are a banker?

The article has a very valid point, that the Government actions taken via the bailout might help. When Reagan came to power the Government had become overbearing and highly irreponsible. This led to a general stance that Government should be shunned and Market Forces worshipped. This is in violation of the carefully calibrated spirit of US Constitution, which believes in Checks and Balances. Had the US legislators upheld the US Constitution, they would have put in place proper checks to balance the greed of Wall Street CEOs. The framers of the US Constitution put in a lot of effort to come up with a truly wise piece of work. Unfortunately for us, it is being ignored by people sworn to uphold it.

Hey, sensey. We can't all be perfect like you.

doug c amen. get off our sixes and adjust to whatever comes financially (not politically) POTUS can only do so much, but can help or harm some. Too bad the ec couldn't decide on neither of the above. anyhow. we'll get through it. some reccession or depression, sure, even I have lived through the big one. but one or tother is a sure thing before we stabilize. needed to get some of the spit out of the system. BTW ten trillion is the forest fire, of immediate import. the other forty trillion is another job, major brush fire, but if we don't let it get in the way of fixing the ten, we have a few (very few) years to get with it. Besides, social security is actually pay as you go, the idea of an annuity type trust fund is and always has been a fiction. (OKsomehow the politicos ARE plugging the is fiction in to the final "solvent" years). but we still have a few to a adjust back to the originalconcepr of providing a SAFETY NET against abject poverty for the older genetrations, NOT A MAJOR SOURCE OF RETIREMENT INCOME FOR EVERY ONE. my thoughts,,not gospel. TTFN

It's called "personal responsibility", don't buy something you can't afford to pay back. You have to learn to live within your financial means, if that means driving a 10 yr old car or a smaller house, no credit cards, so be it. America today is a country of "whiners", you can go without that latest greatest thing, it's not hard. Our fore-fathers & parents built a great country that way. Hard work, sweat and blood and tears. And they were better for it. Grow Up America. As Jefferson said " A government big enough to give you everything you want is a government big enough to take everthing you have". Less government, better life.

Our Government has become irrelevant as compared to this recession we are currently in. They have refused to tell us we have been in recession since the last quarter of 2006. It is easier to play with the inflation ration and remove M3 from the mix. These are the items that scare me: 1. FDIC only has 46 billion in reserves! 2. The 700 billion will be hoarded and not lent. 3. The housing market is three years from a national bottom. 4. The total losses related to mortgages only will exceed 2 trillion easy. They keep saying all the fraud on Wall Street. Wall Street is the name of a road. If all this fraud occured give us the names and hand up indictments. The problem is that all these fools in Washington were in on this mess and some even encouraged it. They won't even tell us the extent of the damage or give us the current situation on our economy! We the people need to take back our country before it is to late!

Why don't the elected politicians use our federal surplus to help out the situation?

Remember that is't onkly supposed to be $700 Billion? Now we're hearing it could be several trillion before it's all over and done? We slept while our government said it would stand our watch. The Demopublicans have been raiding the chicken coop while we slept under their watch. It's time to get every Demopublican out of office and put people in there who believe in the American people, not the American dollar! It's time Bush , Pelosi, and the rest of the Demopublicans were run out of this country! Bob Barr has opposed the bailout since it was first mentioned. Both of the Demopublicans, Obama and McCain, voted for it! If you go to the house.gov and senate.gov you can see which of YUOR congresspeople voted their wallets too!

It will work for sure...It will create Jobs,it will relieve people burden to pay their debts more easy especially those individual will debts....It will create additonal capital to finance the business cost which in turn creat Jobs and most all it give strong moral to the company in trouble. how is this going to help people pay their debt? the govenment isn't giving anybody money but the banks. the banks will continue to give out loans to people who can't afford to pay them back. credit card companies will continue to give out credit cards to people as well. if the damn interest rates on the credit cards weren't so high, people could pay them off. i mean come on, 21+% apr... its ridiculous. the banks put themselves in these positions. i wish this 700B never got passed.

just keep helping the rich get richer !!!

The market will correct itself no matter what the FED does. 700B or 850B is insignificant to the size this problem. I've heard estimates of 780Trillion? for the "toxic" finacial derivatives out there. Just today I heard the FED is expanding it's loans to banks to 900B. The bailout will add to our taxes and the FED's loans will add to inflation. I don't see this as helping.

still pumping stocks. the market is failing, its a systemic collapse, after reviewing the (+1, -2) trend of the entire year, how can you ethically still continue to pump this system when financial collapse is inevitable?

We have not seen the bottom yet. I am betting on another drop and then a slow rebuilding climb.