Markets soar on Treasury plan

markets soar
Bloomberg chart. Today

Maybe Doug Kass was right a few weeks back when he called a market bottom or maybe this is just another monster bear market rally. I’m starting to think maybe Kass was correct.

It’s a stock market truism that when everyone is gloomy, then maybe it’s time to get contrarian. In a societal sense, pessimism in this country is at unheard of levels. That’s why I mock pessimism porn and disaster chic, because moments like that can be when the opposite reaction kicks in. Just saying…

  • Let’s channel Dean Baker, shall we?

    Suppose Timothy Geithner announced a new program that would tax every family $10,000 dollars and give the money to Wall Street banks and hedge funds. (Any resemblance between this hypothetical program and real world programs is purely coincidental.)

    We would expect the stock of Wall Street banks and other financial sector firms to rally based on the anticipation of higher profits. Is this good for the economy? It’s not in any obvious way. After all, we can always tax people more to raise profits for Wall Street, but that doesn’t help the economy.

    Reporters should remember this when assessing Wall Street’s response to the plan proposed by Geithner for buying bad assets from banks. The larger the subsidy, the better the news for Wall Street. It’s not clear that most of the public should be happy about seeing more of their tax dollars going to Wall Street.

    • When Lehman Brothers cratered, they took down Iceland with them. Do we need a replay of that with bigger banks? Since the planet has never been in a predicament like this before, there is no established game plan to follow. They have to make it up as they go.

      What would you do?

  • DJ

    I agree. Once again, we’re blinded by the fiction that we can’t survive without the Red Market. Most of us can– and will.

  • I’d give a considerable amount of thought to whose advice is likely to be most trustworthy. I don’t think that the answer I’d come back with would be the Rubin/Pauson/Geithner “what’s good for Wall Street is good for America” school. I lean toward Jamie Galbraith’s view at the moment.

    And I don’t hear anybody pushing for a replay of Lehman.

    • Interesting article. Thanks. My guess, nationalization is on the list, but only as a last resort. As some economist said recently, nationalization is not easily reversible.

      • I don’t see why not. Look at the S&L’s, or IndyMac. The only kind of nationalization on the table is more like receivership–there end up being a whole lot of assets to sell off, and manage in the interim, but the FDIC takes over banks every week.

  • Sue

    Because our economy is based on consumer spending … and the consumers have been so damaged and continue to be … what will drive the economy in the next few years? I believe this rebound is entirely due to excessive optimism, not anything real and sustainable. However, I am ready and willing to admit I’m wrong … just show me where.

    • If they can unclog the garbage at banks, then banks start lending. That spurs business and consumption. Plus, the stimulus has many billions for infrastructure spending and r&d, which can also help jump-start things. Like what FDR did.

    • I’m with Sue here, I think. Do you really think that GM and Ford (and even the good car companies) are not selling cars because buyers can’t get auto loans? I don’t.

      It was convenient to turn a blind eye to the housing bubble because it helped to deflect the post-net-boom recession. Unless everyone gets a sudden urge to get into tulips, where’s the next bubble? Seems to me that housing prices generally still have a ways to drop to get back to historical reasonableness, and PE’s are only now back to trend, more or less. What’s to jump-start but another bubble?

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