The floodgates are open but the news isn’t there
The floodgates at the Federal Reserve are now open to the banking industry. With $700 Billion earmarked for the sole purpose of buying up worthless debt, the banking industry and the credit market (at least in the hopes of legislators and Fed chairmen) will turn around to provide liquidity not just to the market but also to average people looking to buy homes, cars or anything else that is traditionally financed debt.
No one expects this $700 Billion to be the last. Considering the voting record not only of this Congress but also of the presidency, I doubt very seriously that future bailouts will ever be turned down. This is an all or nothing administration that desires more to fuel the fire than to fix the problem of an over-consuming America and a society built on capital appreciation over the last 20 years.
Even after the passing of this $700 Billion the credit markets are still locked tight and the derivatives market still nearing its death. The estimated $600 trillion derivatives market is full of banking investments in things that might not exist. Leveraged bets on something so volatile that one failure to pay can result in a complete failure of the derivatives market and trillions of dollars of losses across the banking industry. If the Treasury and the Federal Reserve continue to buy troubled debts as they appear, the market can be sustained for however long taxpayers and legislators are willing to hand over money to keep the system in check. Eventually though the bills must be paid, this $700 Billion will continue to incur interest debt until the first checks begin to roll in from the troubled banks.
At this time it is difficult to take any position in the market, the $700 Billion bailout did little to excite investors on Friday and won’t play out to much of a factor in the general decline of the market.
