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Portfolio > ETFs > Broad Market

Market Blues

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For almost 8 of the longest years in history, we have been hearing the Bush administration sing the praises of free and unrestrained markets, while regularly dishing oversight and regulation as pesky and unnecessary.

So who would have guessed that this band of free marketers, headed by our first MBA president, would have presided over the biggest nationalizations of Wall Street firms and financial institutions in history? It turns out that Uncle Sam is Wall Street’s rich uncle.

These ballyhooed years of “let the markets do their thing” are turning out to be the most tumultuous period of economic turmoil and upheaval since the Great Depression.

Big institutions are swooning and dropping like flies. Except that there’s nothing fly-weight about the multi-billion dollar casualties that have been experiencing free falls like nothing in memory.

First it was Bear Stearns in a $30 billion bailout. Bear was “too big to fail” and had too many networked connections throughout the global financial system. Thus, Uncle Sam had to step in.

This, however, did not stop the roiling in the markets. The write-downs and the crises continue unabated.

It is likely, however, that no bailout will be bigger than the one the Treasury Department engineered earlier this month for Fannie Mae and Freddie Mac, the huge mortgage companies.

The government placed the two companies in conservatorship, meaning it essentially took them over, backing them with the full faith and credit of the United States government.

Ridiculously, Treasury Secretary Hank Paulson says he does not know what the ultimate tab will be to U.S. taxpayers who are now on the hook for the rescue of Freddie and Fannie.

Come on, Hank, now’s not the time to be coy. Is it going to be $100 billion, $200 billion, $400 billion?

But then, you have to wonder if it really matters. The country is so up to its eyeballs in debt that a few hundred billion here or there hardly seems to matter any more.

The real reason Freddie and Fannie had to be saved, of course, is that China and the rest of the world that has propped us up for the last few years had huge stakes in F and F and were getting nervous. Imagine if the flow of money stopped.

What I really get a kick out of is the argument that because the shareholders in these bailed-out companies saw their holdings decimated that is proof that the market works. Yes, but let’s not forget that while they may have paid, the rest of us–you and I–are now holding the bag.

We’ve gone so far beyond the vaunted “moral hazard” line with these deals that it just doesn’t seem to matter any more. You can see the queue forming of companies trotting out the “too big to fail” line.

As I write this, I’m wondering is Lehman Brothers going to be deemed too big to fail? And what about Washington Mutual, the country’s largest savings and loan? WaMu’s stock closed at $2.32 on Sept. 10 and the company seems to be headed for disaster.

But, hey, the stockholders are getting pummeled, so it’s OK.

Despite all this, I’m determined to look at the bright side, however. I’m so juiced about the fact that some of my tax dollars are going to stand behind Fannie and Freddie (and who knows how many others?) that I’m going to go out and buy a set of suspenders so I can snap them just like the guys on Wall Street with the rich uncle do.


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