Paulson: Boom then Bust

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US Investing $250 Billion in Banks New York Times
The Treasury Department, in its boldest move yet, is expected to announce a plan on Tuesday to invest up to $250 billion in banks, according to officials. The United States is also expected to guarantee new debt issued by banks for three years — a measure meant to encourage the banks to resume lending to one another and to customers, officials said.

Stocks Soar on Wall Street as Markets Bounce Back from Worst Rout in 20 Years VOA
The Dow Jones Industrial Average Monday registered its biggest daily point gain ever, gaining 936 points or 11 percent. The Bush administration is expected to unveil a plan to spend up to $250 billion buying stock in private banks so that they can raise money and resume normal lending. Government and industry sources say President Bush will announce the plan at the White House Tuesday. VOA's Barry Wood reports that Wall Street's powerful rally followed new commitments of public money to unfreeze credit markets.

Nikkei bounces back to end up a record 14.2%
MarketWatch
Japanese stocks soared Tuesday, rebounding from last week's multi-year lows, with the benchmark Nikkei 225 Average climbing a record 14.2% on a broad-based rally after U.S. indexes posted a double-digit surge overnight.

Other Asian markets jumped as well, as governments around the world unveiled plans worth hundreds of billions of dollars to rescue banks as part of their efforts to find a solution to a financial crisis that has weighed on global markets for more than a year.




Why the Bailout Scam Is More Likely to Fail than to Succeed Global Research
The first major problem is that the current financial disaster is not really a liquidity problem as it is repeatedly portrayed to be. It is a problem of faith and trust, or lack thereof, which in turn stems from the disproportionately large amount of junk assets or mortgages relative to real assets. It is true that lending and credit expansion has almost come to a halt and, in this sense, there is a serious liquidity crisis. But this illiquidity is not really due to a lack of good money or real assets in the system. It is rather because owners of such valuable assets are unwilling to lend their precious possessions to owners of troubled assets, or worthless papers.

The second major problem with the bailout scheme is that it is simply unfeasible and ineffectual because there is just not enough good money to redeem all the bad money that has ballooned or bubbled to a multiple of the good money and/or real assets.

The third major flaw of the bailout plan is that, as mentioned earlier, it does not address the real problem: the problem of rescuing the financially-distressed homeowners. As Dr. Paul Craig Roberts points out, “the Paulson bailout does not address the core problem. It only addresses the problem for the financial institutions that hold the troubled assets. Under the bailout plan, the troubled assets move from the banks' books to the Treasury's. But the underlying problem--the continuing diminishment of mortgage and home values--remains and continues to worsen.”

And this brings us to the discussion of the fourth major problem of the Paulson/Bernanke bailout scam: lack of any economic stimulus plan, which is badly needed for economic revival. While government substitution for predatory lenders and the resulting institution of realistic or devalued mortgage installments will certainly lighten the financial burdens of the economically-pressed, it will not relieve them from the need to earn an income and make a decent living. Nor would it (by itself) provide the badly needed purchasing power or necessary demand to stimulate the economy.

And this brings us to the fifth major problem of the Paulson/Bernanke bail out scheme: absence of any mention, let alone change, of our warped or lop-sided fiscal policies and priorities.



We'll be watching you Paulson and your little dog Bernanke too.