Holiday Gifts for Americans: Lumps of Coal

It looks like Americans got the proverbial lump of coal for the holiday gift from their government.

It started in the week before the Christmas week, but the news quietly spread on the Internet during the Christmas week.

Did Obama exempt Interpol from same legal constraints as American law-enforcement? (12/23/09 Hot Air)

The president of the United States did that on December 16 by amending Executive Order 12425 signed by President Reagan and removing the exceptions in the original Order. Mainstream media didn't report. It was bloggers who caught it.

"In Executive Order 12425, Reagan made two exceptions to that status. The first had to do with taxation, but the second was to make sure that Interpol had the same accountability for its actions as American law enforcement — namely, they had to produce records when demanded by courts and could not have immunity for their actions."

Now that's gone, thanks to the presidential signature. Interpol can do whatever it wants in the U.S., and they don't have to tell anyone why they are doing what they are doing.

Then, on Christmas Eve, we were greeted with two pieces of joyful news. First, in the very early morning,

Senate Passes Health Bill (12/24/09 Politico Live Pulse)

So now we have a new "right" - a right to health care insurance. And we don't have a right not to have health care insurance. And the right will be forced upon us with penalties and taxes and jail-time. (Much like spreading "democracy" at gunpoint.)

Then, after the holiday-shortened stock market was closed, Treasury Secretary Timmy Geithner announced that the government was going to remove the $400 billion cap on aid to Fannie Mae and Freddie Mac, two of the three wards of the state (the third one being AIG):

A Lump of Coal from Treasury (Mark A. Calabria, 12/29/09 Cato Institute)

The existing limit was $200 billion each, total $400 billion. Now the federal government will backstop the entire balance sheets of Fannie and Freddie, and that's over $5.5 trillion dollars. Cato Institute's article speculates that it is not for the support of the U.S. mortgage market but to support large holders (foreign and domestic) of Fannie and Freddie debt instruments.

On Christmas Day, a hilarity and ensuing dismay: a panty bomber struck and failed, and airline passengers get the punishment.

A son of a rich Nigerian banker was assisted by a sharply-dressed man at Schiphol airport in Amsterdam and boarded the plane without passport. Then, just before landing on Detroit, he tried to ignite explosives hidden in his underpants and failed.

As the result, all around the world, people are being subjected to lengthy and probably totally unnecessary pre-boarding checks and other potential intrusions into privacy like whole-body scan and behavioral profiling (whatever that means by this towering intellectual), and a bracelet that can zap you immobile if you are bad ("bad" defined by the panicky flight attendants?).

Then on December 30, a Bloomberg article revealed that Barney Frank's bill for financial overhaul (H.R. 4173) which passed the House include a generous help package for the too-big-to-fail banks: $4 trillion. U.S. taxpayers will have the privilege to pay for it one way (tax) or the other (inflation):

Bankers Get $4 Trillion Gift From Barney Frank (David Reilly, 12/29/09 Bloomberg)


Happy New Year.

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What the @#$% Happened in September-November 2008: Part I

For your weekend reading pleasure.

These are the headlines and some snippets from the articles on the front pages of Investor's Business Daily in September, October and November 2008. This is Part I.

I saved the front pages of IBD newspaper which I was subscribing to at that time. Not for any particular reason, but even back then, I felt, as a lot of others did, something was irreparably, irreversibly changing in the U.S. financial market. It felt like the last days of the market, and maybe they were.

(I have a Dow Jones daily chart of September 08 in my other blog's post. It opens a new window.)

Since I'm reading off the physical newspaper pages, the indices' numbers are those of the day prior to the date; the same goes for the news headlines.

September 9, 2008 (Tuesday)
(S&P 500 Index 1,268, Dow Jones Industrial 11,511, Nasdaq 2,520)

• U.S. Takeover of Fannie, Freddie Still Doesn't End Troubled Saga
• Builders And Banks Rally Over Seizure of Freddie, Fannie
• Fannie's stock tumbled 90%, Freddie 83%
• Picture of anxious specialists on NYSE floor
• Lehman Brothers Down On Uncertainty: the stock lost 13%
• Delivery Firms Reduce Speed To Save Fuel: UPS eliminates left turn
• S&P cuts Wamu to junk
• Russian troops were still in Georgia

September 16, 2008 (Tuesday)
(S&P 1,192, Dow 10,917, Nasdaq 2,179)

• Stocks Dive On Wall St. Woes, S&P Off 4.7% to 3-Year Low (1192.70)
• Lehman Failure Tests Limits of U.S. Bailouts, "Moral hazard" seen as driving force behind credit system's excesses
• Picture of a Lehman Brother's Market Maker with her hands over her brow
• (Lehman Brothers filed for bankruptcy on September 15, Merrill Lynch sold to Bank of America.)
• Crude Oil Plunges Below $100: the first sub-$100 since March 4.
• The acquisition of Merrill "creates the premier financial company in the world. It was an opportunity of a lifetime." - Ken Lewis, Bank of America CEO and chairman

September 17, 2008 (Wednesday)
(S&P 1,213, Dow 11,059

• AIG Falls As Rumors About Insurer Swirl; Many Banks Climb
• AIG Falls Day and Night, Goldman Not So Golden
• Fed Keeps Interest Rate Steady at 2% After Pushing $50 Bil To Banking System
• Picture of Presidential helicopter flying over Galveston Texas, after Hurricane Ike
• "The Fed's non-action [not cutting the rate further] suggests that things might have reached a bottom," said Richard Yamarone, Argus Research's director of economic research.

September 18, 2008 (Thursday)
(S&P 1,156, Dow 10,609, Nasdaq 2,098)

• Stocks Dive Despite AIG Bailout, worldwide stock markets plunged
• Credit Default Swaps At Meltdown's Heart, Everybody's A Suspect
• Congress Consideres Ways To Aid Market And Ailing Economy
• Chart of CDR Counterparty Risk Index showing huge spike on AIG bailout
• Buyout rumors swirl around Morgan Stanley and WaMu
• Fed Maneuvers Fail to Placate World Markets: Who's Holding Toxic Assets?
• Treasury Steps In To Finance Fed: The first auction on Wed netted $40 bil. Treasury officials insisted the Fed isn't short of resources
• Market Woes Whip Up Gold, Oil: gold blasted to its biggest one-day gain ever, vaulting $70 to settle at $850.50
• SEC Clamps Down On Short Sales: new limits on naked short selling

September 19, 2008 (Friday)
(S&P 1,206, Dow 11,019, Nasdaq 2,199)

• Market Takes Heart From Talk of Fund To Hold Bad Assets [That was the beginning of TARP]
• Government May Absorb Banks' Sour Securities; S&L Crisis RTC Is the Model
• Fed Adds $105 Bil To U.S. System, another $180 bil made available to lend to banks [Discount Window]
• Congress Lies Low To Avoid Bailout Blame; Lawmakers fear wrath of voters as cost of crisis soars to $ 1 tril or more
• Gold Surges, Reverses, Crashes on Treasury plan to create RTC-like entity. Gold fell $50 in one hour.
• Shares of Morgan Stanley, Goldman Sachs went free-fall on Thursday, then violently reversed when the news of short sale ban in Britain reached the U.S. Morgan Stanley's share went to $11, ended the day at $22. Goldman Sachs, low $85, closed at $108.
• Putnam's Prime Money Market Fund folded, a day after Reserve Primary Fund broke a buck
• Picture of President Bush, making a statement regarding the Federal Reserve's action

September 22, 2008 (Monday) [but paper was issued on September 20, Saturday, as IBD always does)
(S&P 1,255, Dow 11,388, Nasdaq 2,273)

• Paulson announces bailout plan on Friday, gives few details
• Stocks Buy Into Rescue Plan, S&P Soars 4% as U.S. Acts. Government backs money funds ($50 billion), bans shorting financials (799 of them); big mortgage trust seen.
• Questions Abound Over Bailout; Who, What And How Much? Devil will be in the details; Dems likely to demand aid for ailing homeowners.
• "There will be ample opportunity to debate the origins of this problem. Now is the time to solve it." - President Bush
• "The federal government must implement a program to remove these illiquid assets that are weighing down our financial institutions and threatening our economy" - Treasury Secretary Hank Paulson
• "We've got to deal with the foreclosure issue. This plan must include that." - Chris Dodd, Senate Banking Committee chairman
• S&P 500 5-day chart titled "From Meltdown to Rebound" [hindsight is 20-20]

How's that for one week and a day?

The day I remember most vividly is September 18, Thursday (the news of the day under September 19, of course). The market was constantly selling off, and the selloff suddenly accelerated around 12:00pm. It was like a dark abyss opened up in front of you. Then, all of a sudden around 1:00pm, it violently reversed, paused for a while, then went crazy when the rumor of financial bailout by the government started to float in.

(I read on the net some time later that when that abyss opened up and Goldman's stock was free-falling, someone somewhere on the Goldman's floor played Star Spangled Banner on the internal broadcast system. Many traders stood up with their hand over their chest. "... and the home of the brave" - the music ended, and suddenly the market started to reverse to the wild cheers from everyone. Too good to be true, perhaps. But this is what I remembered reading.)

The next day, Friday, the market continue to go up thanks to bailout talk and ban on shorting (not just naked shorting) on financials, managed to end the week, up. I remember that day, too. The trading of SKF, double short financial ETF was suspended for several hours. When it opened, it gapped down to $87 from the previous close of $115, although it managed to end the day exactly at $100.

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